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Workers and firms are currently expecting the price level to increase from 110 to 114.The Federal Reserve then announces that it will be reducing the growth rate of the money supply.If the Fed's announcement is credible,and firms and workers have rational expectations,describe how the expectations of firms and workers will be affected and how the change in expectations will affect the unemployment rate.
Risk Premiums
Additional returns expected by an investor for taking on additional risk, over and above the risk-free rate of return.
Multifactor APT
Multifactor Arbitrage Pricing Theory, a model that describes the relationship between risk and expected return with multiple factors.
Beta
An indicator of the level of fluctuation, or inherent risk, of an asset or collection of assets relative to the overall market.
Zero-Investment Portfolio
A portfolio of zero net value, established by buying and shorting component securities, usually in the context of an arbitrage strategy.
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