An Increase in the Volatility of GDP Increases the Probability

question 69

Multiple Choice

An increase in the volatility of GDP increases the probability of default because:

• A) it increases political tension and there is a big turnover in government officials who don't know how to run the financial system.
• B) automatic stabilizers kick in and increase spending when GDP is lower, taking money away from repaying debt.
• C) tax receipts are erratic and government is not good at coming up with payments when they are due.
• D) there is still only one potential real GDP level but many more possibilities below potential real GDP, thus a higher likelihood of default.

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Definitions:

Quantity Demanded

Quantity demanded is the total amount of a goods or services that consumers are willing and able to purchase at a specific price level.

Product X

A placeholder name commonly used to denote a specific product, goods, or service in economic models and discussions that is not further specified.

Midpoint Method

A technique used in economics to calculate the elasticity of demand or supply between two points by averaging the two end points' prices and quantities.

Cable Subscribers

Customers who pay for cable television services, often provided through a fixed infrastructure of underground or overhead cables.