If You Are Indifferent Between Investing $1000 for One Year

question 23

Multiple Choice

If you are indifferent between investing $1000 for one year in a U.S. Treasury security that has an interest rate of 5% or in a Canadian government security that has an interest rate of 8%, you must be expecting

• A)the inflation rate in the United States will be higher than the inflation rate in Canada during the year.
• B)the U.S. dollar to depreciate against the Canadian dollar by 3% during the year.
• C)the U.S. dollar to appreciate against the Canadian dollar by 3% during the year.
• D)productivity growth in Canada to be greater than productivity growth in the United States during the year.

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Definitions:

Taxpayer's Spouse

The individual married to the taxpayer, who can be included on a joint tax return, affecting deductions, credits, and taxable income.

Qualifying Widow(er)

A tax filing status allowing a widowed spouse to use married filing jointly tax rates for two years following the death of their spouse, if certain conditions are met.

Tax Liability

The total amount of tax that an individual, corporation, or other entity is legally obligated to pay to a taxing authority.

Single Person

An individual who is not married or in a romantic relationship that is formally recognized, especially with reference to legal or social status.