Which One of the Following Reduces the Likelihood That Real-World

question 99

Multiple Choice

Which one of the following reduces the likelihood that real-world fiscal policy will promote economic stability?

• A) Policy planners do not know whether a tax cut is expansionary or restrictive.
• B) Policy makers need to know what economic conditions will be like 6 to 18 months into the future, and this is extremely difficult to forecast accurately.
• C) Policy planners are reluctant to implement expansionary fiscal policy even during a serious recession.
• D) Public choice theory suggests that elected political officials will generally favor restrictive fiscal policy.

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Definitions:

Dollar-Weighted Return

A method of calculating an investment's return that considers the timing and amount of each investment or withdrawal made.

Geometric Average Return

The average rate of return per period on an investment, calculated geometrically to account for compounding effects.

Arithmetic Average Return

The sum of all returns in a series divided by the number of returns, used to calculate the average performance of an investment over time.

Complete Portfolio

A combination of a risk-free asset and one or more risky assets, structured to meet the investor's risk-return objectives.