When the Economy Begins to Slip into a Recession,the Automatic

question 229

Multiple Choice

When the economy begins to slip into a recession,the automatic stabilizers cause

• A)transfer payments to increase and tax collections to decline.
• B)tax rates to increase so that tax revenues will remain relatively stable.
• C)interest rates to decline.
• D)a movement toward a budget surplus.
• E)the budget deficit to get smaller.

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Definitions:

Risk Premium

The extra return expected by an investor for holding a higher-risk investment over a risk-free asset.

Factor Portfolios

Investment portfolios constructed to have a high sensitivity to certain factors or characteristics expected to yield higher returns, such as size, value, or momentum.

Pricing Model

A theoretical approach used to determine the price of a financial instrument or the valuation of a company.

Risk-Free Rate

The risk-free rate is the theoretical rate of return of an investment with zero risk, serving as a benchmark for measuring financial instruments' risk.