Bond Ratings Use a Classification System to Give Investors an Idea

question 22

True/False

Bond ratings use a classification system to give investors an idea of the amount of default rate risk associated with the bond issue.

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Definitions:

Recessionary Gap

A situation where an economy's real GDP is lower than its potential GDP, leading to unemployment and underutilized resources.

Self-correcting Economy

An economy that possesses mechanisms to automatically adjust itself to balance out recessions or inflations without external intervention.

Recessionary Gap

The difference between the actual output of an economy and its potential output if all resources were fully employed, indicating underperformance.

Expansionary Gap

A situation in an economy where total spending exceeds the production capacity, leading to inflationary pressures and a rise in output.