When There Is a Threat of Inflation in the Economy

question 221

Multiple Choice

When there is a threat of inflation in the economy, the Fed can ________ the federal funds rate so to ________ aggregate demand and ________ the price level.

• A)lower; increase; decrease
• B)raise; decrease; increase
• C)lower; increase; increase
• D)raise; decrease; decrease
• E)raise; increase; decrease

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Definitions:

Semistrong Form

States that current market prices reflect all publicly available information. Therefore, the only way to gain abnormal returns on a stock is to possess inside information about the company’s stock.

Stock Market Efficiency

The concept that all available information is reflected in stock prices, thus making it impossible to consistently achieve higher returns than the overall market.

Nonconstant Growth Model

A valuation approach for stocks that assumes a company's dividends will grow at different rates in different periods, unlike the constant growth model.

Initial Growth Period

The phase in a business or project's life cycle characterized by a rapid expansion in revenue and customer base, often necessitating significant investment in marketing and capacity.