If Interest Rate Parity Holds and the Annual German Nominal

question 49

Multiple Choice

If interest rate parity holds and the annual German nominal interest rate is 3 percent and the U.S. annual nominal rate is 5 percent and real interest rates are 2 percent in both countries,then inflation in Germany is about ________ than in the United States.

• A)1 percent higher
• B)2 percent higher
• C)1 percent lower
• D)4 percent lower
• E)2 percent lower

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Definitions:

Standardized Scoring

A process of quantifying test or assessment results according to prescribed norms and procedures to ensure comparability.

Construct Validity

The validity of a test assuming a specific theoretical framework that relates the item the test measures, often rather abstract, to some other item that is more easily assessed. If the two sets of measurements correlate, the test is said to have construct validity.

Theoretical Framework

A foundational structure used to outline possible courses of action or to present a preferred approach to an idea or thought, often used in academic research.

Test Content

The material, topics, or subject matter that is covered by a test, reflecting what the test is designed to measure.