When the Fed Uses Contractionary Policy

question 141

Multiple Choice

When the Fed uses contractionary policy

• A)the price level rises higher than it would if the Fed did not pursue policy.
• B)the price level rises less than it would if the Fed did not pursue policy.
• C)it does not change the price level.
• D)it causes inflation.

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Definitions:

Cash Payback Method

A method in capital budgeting used to determine the duration needed for an investment to produce cash flows enough to reimburse the initial cost of the investment.

Average Rate of Return Method

A method of evaluating a project or investment by determining the average annual rate of return it will generate.

Net Present Value Method

A method of evaluating investments by calculating the present value of expected future cash flows, subtracting the initial investment.

Internal Rate of Return Method

A capital budgeting technique used to evaluate and compare the profitability of investments, calculating the interest rate at which the net present value of costs equals the net present value of benefits.