Suppose the Fed implements a monetary expansion that is at least partially unexpected. Explain what effect this will have on stock prices
What will be an ideal response?
This will cause the interest rate to fall and output to rise. The lower interest rate will increase the present value of future dividends. The increase in output will cause an increase in expected dividends because profits are now expected to be higher. Both of these effects cause stock prices to rise.
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A payment arrangement between an attorney and a plaintiff, in which the plaintiff agrees to pay a certain lump-sum amount at the outset and no more in the future, regardless of how the case develops is called:
a. contingency fees. b. capitation fees. c. liquidation. d. one-time settlement.
As the general price level in the country of Norweinshire rose, the average interest rate in the economy increased, thereby lowering aggregate expenditure. This relationship between price level, interest rate, and aggregate expenditure is referred to as the:
a. total price effect. b. interest rate effect. c. wealth effect. d. real-balance effect. e. income effect.