Table 26-1 -Refer to Table 26-1. the Hypothetical Information in the Table

question 219

Multiple Choice

Table 26-1

-Refer to Table 26-1. The hypothetical information in the table shows what the values for real GDP and the price level will be in 2015 if the Fed does not use monetary policy. Which of the following policies makes sense if the Fed wants to keep real GDP at its potential level in 2015?

• A) The trading desk should sell Treasury securities.
• B) The Fed should lower the target for the federal funds rate.
• C) The Fed should pursue contractionary policy.
• D) The Fed should lower capital gains taxes.

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Definitions:

Capital Investment Analysis

The process by which management plans, evaluates, and controls investments in fixed assets.

Present Value

The value of an asset or cash at present that is equivalent in value to a specified sum in the future.

Average Rate of Return

A financial ratio used to estimate the profitability of an investment, calculated by dividing the average annual profit by the initial investment cost.

Average Rate of Return

A calculation to determine the profitability of an investment, measuring the average annual return over the investment's lifespan compared to the initial cost.