Figure 36-5 Which of the Graphs in Figure 36-5 Are Consistent with Are

question 161

Multiple Choice

Figure 36-5

Which of the graphs in Figure 36-5 are consistent with a depreciation of the U.S. dollar and an increase in net exports caused by a decrease in U.S. interest rates?

• A) 1
• B) 2
• C) 3
• D) 4

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Definitions:

Default Risk Premiums

The extra yield that an investor demands to compensate for the risk that the issuer of a bond may default on payment.

Treasury Bond

U.S. government debt instruments featuring fixed interest rates and long-term maturity periods exceeding ten years.

Subprime Mortgages

Loans granted to borrowers with poor credit histories, which carry higher interest rates than standard mortgages to compensate for the higher risk.

Mortgage-backed CDOs

Complex structured finance products that pool together cash flow-generating assets and repackages this asset pool into tranches that can be sold to investors, specifically focusing on mortgage-backed securities.