If the Real Interest Rate Is, More or Less, Constant

question 30

Multiple Choice

If the real interest rate is, more or less, constant, and the growth rate of dividends falls sharply:

• A) the price-earning ratio would fall.
• B) the marginal product of capital would fall.
• C) firm profits would rise.
• D) stock prices would rise.
• E) the MPK would rise.

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Definitions:

Pareto Optimal

A state of allocation of resources from which it is impossible to reallocate so as to make any one individual or preference criterion better off without making at least one individual or preference criterion worse off.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity of the good that suppliers are willing to sell.

Sales Tax

A tax imposed by governments on the sale of goods and services, typically calculated as a percentage of the purchase price.

Price

The amount of money required to purchase a good or service, often determined by the interaction of supply and demand.