In the Keynesian Model, When Is the Economy in Short-Run

question 123

Multiple Choice

In the Keynesian model, when is the economy in short-run equilibrium?

• A) when there is no inflation
• B) when there is full employment
• C) when there is a balanced federal budget
• D) when total spending (demand) is equal to production (supply)

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Definitions:

Reinvestment Rate Risk

The risk that the return on funds that are to be reinvested will not be at the same rate as the funds that were initially invested.

Zero Coupon Bond

A type of bond that does not pay periodic interest payments and is instead sold at a discount from its face value and matures at that face value.

Market Interest Rate

The prevailing rate of interest being offered on deposits and loans in the market, influencing how much borrowers pay and lenders earn.

Yield to Maturity

Yield to Maturity (YTM) is the total return anticipated on a bond if the bond is held until the date it matures, accounting for interest payments and principal recovery.