Suppose an Economist Finds That Real Interest Rates Are Extremely

question 170

Multiple Choice

Suppose an economist finds that real interest rates are extremely high in most recession, which are the times when employment is low. This finding would pose the biggest problem for the

• A) new classical theory of the business cycle.
• B) real business cycle theory.
• C) new Keynesian theory of the business cycle.
• D) Keynesian theory of the business cycle.

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Definitions:

Retained Earnings

The portion of a company's profits not distributed to shareholders as dividends but instead reinvested in the business or kept as reserve.

Expected Costs

The forecasted amount of expenses that will be incurred as a result of a certain action or decision.

Interest Rates

The cost of borrowing money or the return on investment, typically expressed as a percentage.

Present Value

The contemporary valuation of a future amount of money or cash flow sequence, based on an identified rate of return.