In the Presence of Rational Expectations, the Central Banks' Willingness

question 75

Multiple Choice

In the presence of rational expectations, the central banks' willingness to battle inflation:

• A) causes future inflation.
• B) becomes a determinant of past inflation.
• C) undermines the ability to fight inflation.
• D) becomes a determinant of expected inflation.
• E) weakens the central government.

---

Definitions:

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its share price.

Cost of Equity

The rate of return that a company is required to pay out to its equity investors, reflecting the compensation for the risk they undertake.

SML Approach

Security Market Line (SML) approach is a graphical representation in the Capital Asset Pricing Model (CAPM) that shows the expected return of an asset or portfolio at various levels of systemic risk.

WACC

Weighted Average Cost of Capital; a calculation of a firm's cost of capital in which each category of capital is proportionally weighted.