One Implication of Coupling the Rational Expectations Hypothesis with the Assumption

question 273

Multiple Choice

One implication of coupling the rational expectations hypothesis with the assumption of flexible wages and prices is that

• A) expansionary monetary policy will be effective in combating recessions.
• B) contractionary monetary policy will be effective in combating inflation.
• C) only predictable policy actions by the Fed will have an effect on the real economy.
• D) only unpredictable policy actions by the Fed will have an effect on the real economy.

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Definitions:

Times Interest Earned Ratio

A financial ratio measuring a company's ability to meet its interest obligations based on current earnings, indicating financial stability.

Net Profit Margin Percentage

A financial metric that shows the percentage of profit a company makes for every dollar of sales, calculated by dividing net profit by total revenue.

Average Sale Period

A financial metric measuring the average time it takes for a company's inventory to turn into sales, often seen as part of inventory turnover analysis.

Price-earnings Ratio

A valuation metric that compares a company's current share price to its per-share earnings.