A Change in the Interest Rate

question 45

Multiple Choice

A change in the interest rate:

• A) has a smaller impact on the present value of a payment to be made far into the future than on one to be made sooner.
• B) will not make a difference in the present values of two equal payments to be made at different times.
• C) has a larger impact on the present value of a payment to be made far into the future than on one to be made sooner.
• D) has a larger impact on the present value of a bigger payment to be made far into the future than on one of lesser value.

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Definitions:

Macroeconomic Theory

A branch of economics that studies the behavior and performance of an economy as a whole, including issues like inflation, unemployment, and national income.

Supply-Sider

An advocate or supporter of supply-side economics, a school of economic thought that emphasizes the benefits of making goods and services more available to consumers.

Expansionary Monetary Policy

To fight recessions, the Federal Reserve increases the money supply.

Rational Expectations Theory

An economic idea that posits individuals make predictions about future events based on their past experiences and available information, effectively using all available information to form expectations about economic variables.