If a Central Bank Is to Successfully End a Sustained

question 34

Multiple Choice

If a central bank is to successfully end a sustained inflation,it is essential that it

• A)avoid any loss in national income.
• B)do so using a "cold-turkey" approach.
• C)change people's expectations of future inflation.
• D)maintain the sacrifice ratio at a constant level.
• E)avoid any increase in unemployment.

---

Definitions:

Efficient Frontier

A concept in modern portfolio theory which represents a set of optimal portfolios that provide the highest expected return for a defined level of risk or the lowest risk for a given level of expected return.

Indifference Curve

A curve connecting all portfolios with the same utility according to their means and standard deviations.

Expected Rate of Return

The anticipated return on an investment, comprising both the risk-free rate of return and additional returns expected for taking on extra risk.

Beta

A measure of a stock's volatility in relation to the overall market, indicating the stock's risk compared to the market average.