An Advantage of Macroeconomic Policy Based on Pre-Specified Rules Might

question 36

Multiple Choice

An advantage of macroeconomic policy based on pre-specified rules might be that ________.

• A)it is easier to stick to long-run considerations and avoid bad long-run outcomes
• B)it is more flexible than discretionary policy
• C)it is easier to adapt to short-run changes and avoid a bad short-run outcome
• D)all of the above
• E)none of the above

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Definitions:

Capital Structure

The particular combination of debt and equity used by a firm to finance its overall operations and growth.

Cost of Capital

Cost of Capital is the rate of return that a company must earn on its project investments to maintain its market value and satisfy its creditors and investors.

Legal Bankruptcy

A legal process whereby individuals or businesses unable to meet their debt obligations can seek relief from some or all of their debts.

Protective Covenants

Clauses in loan agreements that are designed to protect the lender by restricting the borrower’s actions, such as limiting dividends, adding debt, or asset sales.