If the Monetary Authorities Follow Policies That Keep the Annual

question 24

Multiple Choice

If the monetary authorities follow policies that keep the annual rate of inflation steady and low (for example, 2 percent) , which of the following is most likely to occur?

• A) a high rate of unemployment because people will anticipate a higher rate of inflation
• B) considerable fluctuations in real GDP because the monetary authorities are not constantly adjusting monetary policy in light of current business conditions
• C) higher real interest rates because decision makers will fail to anticipate the 2 percent rate of inflation
• D) an unemployment rate that is at or near the natural rate of unemployment because the actual rate of inflation will not be much different than what people expect

Compute the internal rate of return for investment proposals.

Understand the role of sensitivity and expected value analysis in managing the uncertainty in estimates.

Apply capital rationing in the context of allocating funds among various capital investment proposals.

Analyze the average rate of return on investment for capital projects.

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Definitions:

Brain Region

Specific areas within the brain responsible for particular functions or processes.

Ecological Validity

A property of research such that the focus of study is something that occurs naturally outside an experimental laboratory.

Naturalistic Observation

A research paradigm in which an observer observes participants in familiar everyday contexts while ideally remaining as unobtrusive as possible.

Experiment

A test of a scientific theory in which the researcher manipulates the independent variable.