Refer to the Following Production Possibilities Curves

question 19

Multiple Choice

Refer to the following production possibilities curves. Curve (a) is the current curve for the economy. Given production possibilities curve (a) , the combination of capital and consumer goods indicated by point L:

• A) would entail substantial unemployment.
• B) would entail an inefficient use of society's resources.
• C) is beyond the productive capacity of this society.
• D) suggests the productive capacity of the system is declining.

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Definitions:

Return on Equity

A financial ratio that measures the ability of a firm to generate profits from its shareholders' equity.

Net Income

The total profit of a company after all expenses, taxes, and costs have been subtracted from total revenue.

Shareholders' Equity

The residual interest in the assets of a company after deducting its liabilities; also referred to as stockholders' equity.

SML Approach

A method based on the Security Market Line, part of the Capital Asset Pricing Model, used to evaluate the expected return of an investment relative to its risk.