Using the Simple Monetary Rule, If the Inflation Rate Is

question 21

Multiple Choice

Using the simple monetary rule, if the inflation rate is 2 percent below the target inflation rate and the marginal product of capital is 1 percent, the Federal Reserve will:

• A) lower the target rate by 2 percent.
• B) raise the interest rate by 1 percent.
• C) lower the interest rate by 1 percent.
• D) lower the discount rate by 1 percent.
• E) Not enough information is given.

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Definitions:

Net Income

Net income is the profit a company has left over after all its expenses, taxes, and costs have been subtracted from total revenue.

Net Sales

The remaining revenue from sales after removing expenses related to returns, provisions for defective or unaccounted-for goods, and concessions.

Return on Total Assets

Return on total assets (ROTA) is a financial ratio that measures the profitability of a company in relation to its total assets.

Net Income

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