Which of the Following Statements Is CORRECT,other Things Held Constant

question 27

Multiple Choice

Which of the following statements is CORRECT,other things held constant?

• A) If companies have fewer good investment opportunities,interest rates are likely to increase.
• B) If individuals increase their savings rate,interest rates are likely to increase.
• C) If expected inflation increases,interest rates are likely to increase.
• D) Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy,hence the riskiness of all debt securities.
• E) Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills.

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Definitions:

Long Run

A period in economics where all inputs can be adjusted, and companies can change all factors of production.

Phillips Curve

An economic model suggesting an inverse relationship between rates of unemployment and corresponding rates of inflation.

Unemployment Rate

The percentage of the labor force that is jobless and actively seeking employment within an economy.

Long-run Phillips Curve

A graphical representation showing the relationship between inflation and unemployment when inflation expectations are fully adjusted to actual inflation.