Starting from a Long-Run Equilibrium, an Increase in Potential Output

question 127

Multiple Choice

Starting from a long-run equilibrium, an increase in potential output leads to ________ gap in the short run and to ________ rates of inflation in the long run.

• A)an expansionary; higher
• B)an expansionary; lower
• C)a recessionary; lower
• D)a recessionary; higher

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Definitions:

Risk-Adjusted Discount Rate

A rate of return that accounts for the risk of an investment, used in capital budgeting to discount future cash flows to their present value.

Growth Rate

The rate at which a company's earnings or revenue increases over a specified period.

Chapter 7 Bankruptcy

A form of bankruptcy that involves the liquidation of a debtor's assets to pay off creditors, resulting in the discharge of remaining debts.

Chapter 11

The chapter of the bankruptcy code dealing with reorganization. Firms in bankruptcy proceedings are commonly said to be “in Chapter 11.”