If Two or More Markets Are Closely Related

question 33

Multiple Choice

If two or more markets are closely related,

• A) a partial equilibrium analysis will tend to overstate the price impact of a supply shock.
• B) a partial equilibrium analysis will tend to accurately predict the price impact of a supply shock.
• C) a partial equilibrium analysis will tend to understate the price impact of a supply shock.
• D) they should be analyzed concurrently but using partial equilibrium analysis alone.

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Definitions:

Compounded Semi-Annually

Interest calculation method where the interest is added to the principal sum twice a year, causing the interest to earn interest.

Strip Bond

A type of bond where the principal and regular coupon payments have been separated and are sold individually as zero-coupon bonds.

Interest

The cost of borrowing money, typically expressed as a percentage of the borrowed amount, paid by the borrower to the lender.

Effective Rate

The actual interest rate of an investment or loan when the compounding frequency is accounted for, giving a true reflection of the cost or yield.