(Figure: Demand Shock A) When the Economy Moves from a to B

question 27

Multiple Choice

(Figure: Demand Shock A) When the economy moves from A to B, as shown in the graph on the left, how will inflation and the unemployment rate be affected, as shown in the graph on the right?

• A) There will be movement on the curve, so that inflation increases and unemployment decreases.
• B) There will be movement on the curve, so that inflation decreases and unemployment increases.
• C) The curve will shift left, so that both unemployment and inflation decrease.
• D) The curve will shift right, so that both unemployment and inflation increase.

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Definitions:

Forecasting Risk

The potential deviation of outcomes from predicted results in financial projections, due to uncertainties in the market or inaccurate assumptions.

Projected Cash Flows

Estimates of the amount of money expected to be received and paid out by a business over a future period.

Capital Rationing

A strategy or situation where a company limits its new investments or projects due to constraints in available capital.

NPV

Net Present Value; a calculation used to estimate the value of an investment, considering the present value of its future cash flows.