If Interest Rates Increase Because of a Previously Unanticipated Inflation

question 73

Multiple Choice

If interest rates increase because of a previously unanticipated inflation rate risk:

• A) long-lived debt instruments will decline more than short-lived debt instruments
• B) long-lived debt instruments will decline less than short-lived debt instruments
• C) neither set of debt instruments will decline
• D) all other things being equal, both should decline equally

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Definitions:

Negative Stimulus

An unfavorable event or condition that motivates a person to avoid it through their behavior or actions.

Punishment

A penalty imposed for wrongdoing, intended to correct or deter undesirable behavior.

Negative Reinforcement

A behavioral concept where the removal of an unfavorable outcome or stimulus strengthens a desired behavior.

Learned Behaviour

Behaviors that individuals acquire through conditioning or observation, distinguishing from those that are genetically inherited.