According to the Sticky-Price Model, Output Will Be at the Natural

question 9

Multiple Choice

According to the sticky-price model, output will be at the natural level if:

• A) firms expect a high price level and the demand for goods is high.
• B) the proportion of firms with flexible prices equals the proportion of firms with sticky prices.
• C) the price level equals the expected price level.
• D) expectations are formed adaptively, but not if expectations are formed rationally.

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Definitions:

Price Following Split

The adjusted price of a stock after the company carries out a stock split, intended to make the stock more affordable to investors.

Residual Dividend Policy

A strategy where dividends to shareholders are paid from the residual or leftover equity once all project and operational costs have been met.

Target Capital Structure

Refers to the mix of debt, equity, and other financing sources a company aims to maintain to fund its operations and growth.

Dividend Payout Ratio

The fraction of net earnings a firm pays to its shareholders as dividends, expressed as a percentage.