Use the Following to Answer Questions

question 117

Multiple Choice

Use the following to answer questions :
Scenario: Taylor Rule
Suppose the Federal Reserve is following the Taylor rule, which takes both inflation and business cycles into account when setting the federal funds rate. Also suppose that the inflation rate in the economy is 3% and the unemployment gap is -2%.
-(Scenario: Taylor Rule) Look at the scenario Taylor Rule. The economy has:

• A)an inflationary gap, since the inflation rate is high.
• B)a recessionary gap, since the economy is not producing potential GDP.
• C)an inflationary gap, since actual real GDP exceeds potential real GDP.
• D)a recessionary gap, since potential real GDP exceeds actual real GDP.

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Definitions:

Profit Margin

A financial metric used to assess a company's profitability by comparing net income to total revenue.

Dividend Payout Ratio

A financial metric that measures the percentage of a company's earnings paid out to shareholders as dividends.

Sustainable Growth Rate

Refers to the maximum growth rate a firm can achieve without needing to increase its financial leverage.

Dividend Payout Ratio

The fraction of net income a firm pays to its shareholders in dividends, represented as a percentage of the company's total earnings.