If the Fed Raises the Interest Rates on Short-Term U

question 178

Multiple Choice

If the Fed raises the interest rates on short-term U.S. government bonds, then the Security Market Line shifts

• A) downward as the risk-free interest rate increases.
• B) downward as the risk-free interest rate decreases.
• C) upward as the risk-free interest rate increases.
• D) upward as the risk-free interest rate decreases.

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Definitions:

Economic Losses

Financial shortfalls that occur when a firm's total costs surpass its total revenues, leading to a negative profit margin.

Positively Correlated

Describes a relationship between events such that each event is more likely to occur if the other event also occurs.

Diversification

Diversification is an investment strategy that involves spreading investments across various assets to reduce risk and increase the potential for returns.

Positively Correlated

A relationship between two variables in which both variables move in the same direction.