-Refer to the Above Figure

question 121

Multiple Choice

-Refer to the above figure. Suppose the natural rate of unemployment is 5 percent. If the government tried to reduce unemployment to 4 percent and keep it there, it must

• A) raise unemployment benefits.
• B) accept a permanent inflation rate of 1 percent.
• C) generate higher and higher inflation rates or else people will adjust their behavior and the unemployment rate will return to 5 percent.
• D) use contractionary fiscal and expansionary monetary policy.

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Definitions:

Investment Project

A project involving the allocation of funds to assets or activities with the expectation of generating income or profit in the future.

Incremental Annual Net Cash Inflows

The additional cash flow a business expects to receive over a year as a result of a specific decision or investment, net of expenses.

Contribution Margin

The amount of revenue remaining after deducting variable costs, which can be used to cover fixed costs and contribute to profit.

Operating Costs

Expenses associated with the operation of a business, including costs of goods sold and administrative expenses.