Suppose Expected Inflation Is Fixed at Zero and We Are

question 47

Multiple Choice

Suppose expected inflation is fixed at zero and we are on the SP curve with p = 2 and Y = 104.If nominal GDP rises (again) by 6 percent

• A)the SP curve must now shift up.
• B)we must move off the SP curve to where p = 6 and Y = 104.
• C)we must slide northeast further up the SP curve.
• D)we must move off the SP curve to where p = 2 and Y = 110.

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Definitions:

Intrinsic Value

The perceived or calculated true value of an asset, investment, or company based on fundamental analysis rather than current market price.

Equilibrium

A state in which market supply and demand balance each other, resulting in stable prices and no tendency for change.

Call

An options contract that gives the investor the right, but not the obligation, to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.

Put

A financial derivative option that gives the holder the right, but not the obligation, to sell a security at a specified price within a specified time.