The First or Basic Principle of Finance Dictates That an Individual

question 14

Multiple Choice

The first or basic principle of finance dictates that an individual will invest in a project if:

• A) they are made better off in the financial market.
• B) they are unable to adjust their savings and consumption in the financial market.
• C) if the project is at least as desirable as what is available in the financial markets.
• D) the interest rate for borrowing and lending is not equal.

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Definitions:

Monetary Policy

The process by which a central bank controls the supply of money in an economy, typically targeting inflation, employment, and economic growth.

Potential Level

The potential level of output, or potential GDP, is the maximum amount of goods and services an economy can produce when it is fully utilizing its resources, without causing inflation to rise.

Fixed-growth-rate Monetary Policy

A monetary policy framework aiming to maintain a predetermined rate of growth in the money supply.

Active Fiscal Policy

Government policy that involves altering government spending and taxation to influence the economy.