The Natural Rate Hypothesis Asserts That

question 56

Multiple Choice

The natural rate hypothesis asserts that

• A) when prices change, the inflation rate changes temporarily and then returns to its natural rate.
• B) price changes occur at a natural rate, near a 6 per cent average inflation rate.
• C) changes in the unemployment rate are natural and long-lasting.
• D) changes in the natural unemployment rate are only temporary.
• E) changes in the unemployment rate from changes in the inflation rate are temporary.

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Definitions:

Rate of Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's initial cost.

Overpriced Securities

Securities deemed overpriced are trading at a price higher than their intrinsic or true value, often due to speculative activities or market anomalies.

Positive Alphas

Investments that have performed better than their benchmark indices, indicating they have generated excess returns adjusted for risk.

Betas

A measure of a stock's volatility in relation to the overall market, indicating its risk compared to the market average.