The Natural Rate Hypothesis States That in the Long Run

question 113

Multiple Choice

The natural rate hypothesis states that in the long run,

• A)economic policy can reduce both inflation and unemployment
• B)the economy's natural rate of annual growth is approximately 3%
• C)monetary and fiscal policy have their greatest effect on the rate of unemployment
• D)the Phillips curve is horizontal
• E)the economy tends toward the natural rate of unemployment

---

Definitions:

Total Risk

The complete range of risks involved in an investment, encompassing both systematic and unsystematic risks.

Expected Return

The anticipated amount of profit or loss an investment is expected to generate over a given period.

Securities

Financial instruments that represent ownership positions in corporations (stocks), creditor relationships with corporations or governmental bodies (bonds), or rights to ownership as represented by an option.

Capital Allocation Line

A line on a graph that shows the risk-reward ratio of portfolios that combine a risk-free asset and a risky portfolio.