In Which Case,if Any,will Inflation Remain Higher After a Temporary

question 50

Multiple Choice

In which case,if any,will inflation remain higher after a temporary adverse supply shock?

• A)both when the central bank maintains a higher money supply growth rate and when the central bank does nothing
• B)only if the central bank does nothing
• C)only if the central bank maintains a higher money supply growth rate
• D)None of the above is correct.Whether the central bank maintains a higher money supply growth rate or not,the inflation rate will return to its original level.

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Definitions:

Capital Allocation Line

A line on a graph that shows the rates of return of portfolios that optimally combine risk and return for an investor.

Risk-averse Investors

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Optimal Risky Portfolio

An investor’s best combination of risky assets; the combination that maximizes the Sharpe ratio.

Expected Utility

A theory in economics that calculates the utility expected from an investment or action, considering all possible outcomes weighted by their likelihood.