Volatility Clustering Is

question 10

Multiple Choice

Volatility clustering is

• A) The tendency for financial asset returns to have distributions that exhibit fat tails
• B) The tendency for financial asset return volatility to appear in bunches
• C) The tendency for volatility to rise more following a large price fall than following a price rise of the same magnitude
• D) All of the above

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Definitions:

Adverse Supply Shock

An unexpected event that suddenly decreases the supply of a good or service, leading to increased prices and reduced quantity.

Price Level

An assessment of the standard prices of goods and services in an economy at a particular moment.

Real GDP

The total value of all goods and services produced by a country, adjusted for inflation or deflation.

Expansionary Gap

A situation in macroeconomics when aggregate output is above potential output, often leading to inflationary pressures.