A Way for Policymakers to Avoid the Problems That Deflation

question 2

Multiple Choice

A way for policymakers to avoid the problems that deflation can present and still meet their objective of price stability is to:

• A) set a target of zero inflation.
• B) keep the monetary base fixed.
• C) set a higher inflation target.
• D) target a nominal interest rate of zero.

Recognize the role of dividends in determining stock yields.

Understand the implications of efficient market hypothesis for investment returns and market predictions.

Calculate and interpret the variance and standard deviation as measures of return volatility.

Examine the risk and return profiles of various investments over historical periods.

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