Which of the Below Statements Is FALSE

question 35

Multiple Choice

Which of the below statements is FALSE?

• A) One interpretation of the Pure Expectations Theory suggests that the return will vary dramatically over a short-term investment horizon starting today.
• B) According to the liquidity theory of the term structure, the implicit forward rates will not be an unbiased estimate of the market's expectations of future interest rates because they embody a liquidity premium.
• C) The preferred habitat theory adopts the view that the term structure reflects the expectation of the future path of interest rates as well as a risk premium and at the same time rejects the assertion that the risk premium must rise uniformly with maturity.
• D) The market segmentation theory differs from the preferred habitat theory in that it assumes that neither investors nor borrowers are willing to shift from one maturity sector to another to take advantage of opportunities arising from differences between expectations and forward rates.

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Definitions:

Government Spending

The total expenditure by the government on goods and services, including salaries of public servants, public investments, and social services.

Tax Increases

A rise in the rate of taxes imposed by governments on individuals or businesses.

Inflationary Gap

A situation where the total demand for goods and services exceeds the total supply at current prices, leading to upward pressure on prices and inflation.

Full Employment GDP

The level of gross domestic product achieved when the economy is fully employing all available labor and resources, maximizing output.