Explain why two countries with the same average rate of inflation may not present the same inflation risk for holders of those countries' bonds?
What will be an ideal response?
As the text points out, while the expected (or average) inflation can be the same, the standard deviation around this expected rate presents different amounts of risk. The higher the standard deviation, the greater the risk. For countries where inflation is volatile, the standard deviation around their average expected rate will be greater, and therefore their bonds will present greater inflation risk.
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There is a negative relationship between the real rate of interest and investment spending
Indicate whether the statement is true or false
Which one of the following expressions is the MOST accurate?
A) CA = EX - IM B) CA = IM - EX C) CA = EX = IM D) CA = EX + IM E) CA - IM = EX
Consider the two graphs above. Suppose there is an increase in the real interest rate. This would ________ the desired level of the capital stock, as depicted in graph ________
A) increase; B B) increase; A C) decrease; B D) decrease; A
A government-inhibited good is one that
A. would be underproduced by the private market. B. cannot be individually consumed. C. should be subsidized to correct the market failure and productive inefficiency. D. has been deemed socially undesirable via the political process.