Use the Figure Below to Answer the Following Question(s)

question 155

Multiple Choice

Use the figure below to answer the following question(s) .
Figure 10-7

-If the economy were operating at point a in Figure 10-8,the real rate of interest would tend to

• A)decrease and move the economy toward point c.
• B)decrease and move the economy toward point b.
• C)increase and move the economy toward point c.
• D)increase and move the economy toward point b.

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Definitions:

Risk-Free Rate

The theoretical return on investment with no risk of financial loss, typically represented by the yield on government securities.

Standard Deviation

A statistical measure that quantifies the amount of variability or dispersion around an average.

Optimal

The most favorable or desirable condition, outcome, or level, often in terms of efficiency or success.

Minimum-Variance Portfolio

A portfolio constructed to achieve the lowest possible risk (variance) for a given rate of expected return, optimizing risk-adjusted returns.