Typical Individuals Have Difficulty Judging the Default Risk of Any

question 22

Multiple Choice

Typical individuals have difficulty judging the default risk of any one company,let alone the thousands of firms that sell bonds in a developed economy.To address this problem,

• A) the price of bonds increases as more information is made available to investors.
• B) borrowing entities rate their own bonds.
• C) individuals should never invest in bonds.
• D) the government assigns ratings of borrowing entities.
• E) private rating agencies evaluate and then grade the default risk of borrowing entities.

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Definitions:

Unemployment

The situation in which individuals who are capable of working and are actively seeking work but are unable to find a job.

Expected

Something considered likely or anticipated to happen or become a reality in the future.

Potential GDP

The highest level of real GDP that can be sustained over the long term without increasing inflation, assuming full employment of resources.

Expansionary Policy

A macroeconomic policy that aims to stimulate the economy by increasing government spending, decreasing taxes, or lowering interest rates to boost economic activity.