Relatively Rapid U

question 212

Multiple Choice

Relatively rapid U.S. growth between 2002 and 2006 contributed to large U.S. trade deficits by

• A) increasing U.S. national income, which decreased U.S. exports.
• B) reducing real interest rates in the United States.
• C) increasing U.S. tax revenues and reducing the federal budget deficit.
• D) increasing U.S. national income, which increased U.S. imports.

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Definitions:

Risk Premium

The excess return that an investment is expected to generate above the risk-free rate, compensating investors for taking on a higher level of risk.

Arbitrage

The practice of buying an asset in one market and simultaneously selling it in another market at a higher price, thereby profiting from the temporary difference in prices.

Risk-Free Economic Profits

Refers to theoretical profits that an investor can make without taking any market risk, which in reality is very hard to achieve due to market efficiencies.

Short Selling

Short selling is an investment strategy where an investor borrows shares and sells them on the open market, planning to buy them back later at a lower price to profit from the difference.