In the Long Run,if the Fed Lowers the Inflation Rate

question 114

Multiple Choice

In the long run,if the Fed lowers the inflation rate and holds it at that new rate,

• A) a zero inflation rate will be reached
• B) a recession will not occur
• C) inflationary expectations will fall
• D) the natural rate of unemployment will rise
• E) structural unemployment will start to decrease

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Definitions:

Retention Rate

A metric indicating the percentage of earnings not paid out as dividends but retained by the company for reinvestment.

Plowback Ratio

The proportion of the firm’s earnings reinvested in the business (and therefore not paid out as dividends). The plowback ratio equals 1 minus the dividend payout ratio.

Expected Growth Rate

The anticipated rate at which an investment, economy, or other financial entity will grow over a certain period.

Rate of Return

The outcome in terms of profit or loss on an investment over a designated period, presented as a percentage of the investment’s first cost.