Given Keynesian Assumptions About the Shape of the Aggregate Supply

question 85

Multiple Choice

Given Keynesian assumptions about the shape of the aggregate supply curve and an economy suffering a recession,which of the following is most likely to occur if the Fed pursues expansionary monetary policy?

• A) The equilibrium price level and output will both increase until full employment is reached.
• B) The equilibrium price level and output will both decrease.
• C) The equilibrium price level will increase but output will stay the same.
• D) The equilibrium output will increase but the price level will stay the same until full employment is reached.

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Definitions:

Weighted Average Cost of Capital (WACC)

The average rate of return a company is expected to pay its security holders to finance its assets, weighted by the proportion of equity and debt in the company's capital structure.

Coupon Rate

The rate of interest a bond pays annually, expressed as a percentage of its nominal value.

Dividend Growth Rate

The annualized percentage rate of growth of a company’s dividend payout, indicating the stability and growth prospects of the company to investors.

Tax Rate

The percentage at which an individual or corporation is taxed, which can vary based on income levels, types of income, and other factors.