The Potential Output of an Economy Is the Level of Output

question 165

Multiple Choice

The potential output of an economy is the level of output produced when the

• A) real wage equals the nominal wage.
• B) price level is constant.
• C) expected real wage equals the inflation rate.
• D) expected price level equals the unemployment rate.
• E) expected price level equals the actual price level.

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Definitions:

Risk Premiums

Additional returns expected by an investor for taking on additional risk, over and above the risk-free rate of return.

Multifactor APT

Multifactor Arbitrage Pricing Theory, a model that describes the relationship between risk and expected return with multiple factors.

Beta

An indicator of the level of fluctuation, or inherent risk, of an asset or collection of assets relative to the overall market.

Zero-Investment Portfolio

A portfolio of zero net value, established by buying and shorting component securities, usually in the context of an arbitrage strategy.