In an Open Economy,there Should Be a Close Positive Relationship

question 41

Multiple Choice

In an open economy,there should be a close positive relationship between

• A)budget deficits and interest rates.
• B)trade deficits and budget deficits.
• C)savings and investment.
• D)investment and consumption.
• E)none of the above.

---

Definitions:

Risk Premium

The extra return above the risk-free rate that investors demand to compensate for the additional risk of holding a risky asset.

Risk-free Investment

An investment with a guaranteed return and no chance of default, typically associated with government bonds or similar financial instruments.

Risky Investment

An investment with a high degree of risk where there is the potential for significant loss but also significant gain.

Capital Markets

Financial markets where long-term debt or equity-backed securities are bought and sold, facilitating the raising of capital by companies and governments.