The Stability of Consumption Over the Business Cycle and the Ability

question 189

Multiple Choice

The stability of consumption over the business cycle and the ability of changes in the real interest rate to redirect aggregate demand indicate that

• A) government policy can improve the performance of the economy.
• B) market economies are inherently unstable.
• C) a market economy has a self-correcting mechanism that will help guide it toward full employment.
• D) recessions will be lengthy, and high rates of unemployment will persist for a period of time even after the economy recovers.

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Definitions:

Sustainable Rate

A Sustainable Rate often refers to the growth rate at which a company can continue to grow without needing to increase financial leverage.

Capital Budgeting

The process by which a business evaluates and selects long-term investments that are consistent with the firm's goal of maximizing owner wealth.

Capital Structure

The mix of debt and equity financing used by a firm to fund its operations and growth.

Planning Horizon

Planning horizon refers to the period time a person or organization looks into the future when preparing strategies or making decisions.