If Interest Rate Parity Holds and the Annual German Nominal

question 46

Multiple Choice

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

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

---

Definitions:

Adverse Selection

A situation where asymmetrical information leads to a mismatch between buyers and sellers, with one party having more or better information than the other.

Reckless Drivers

Individuals who operate vehicles in a careless or dangerous manner, often violating traffic laws and putting themselves and others at risk.

Safety Devices

Equipment or systems designed to prevent accidents, injuries, and harm in workplaces, vehicles, or public spaces by reducing risks and hazards.

High Risk

Situations or investments that carry a significant possibility of loss or failure.