When GDP Volatility Increases, It Changes the Equilibrium in the Credit

question 134

Multiple Choice

When GDP volatility increases, it changes the equilibrium in the credit market for sovereign borrowers. How?

• A) Volatility increases the probability that a nation will repay and decreases the need to borrow, so the equilibrium debt level and interest rates drop.
• B) Volatility decreases the probability that a nation will repay and increases the need to borrow, so the equilibrium debt level is indeterminate and interest rates rise.
• C) Volatility decreases the probability that a nation will repay and decreases the need to borrow, so the amount of debt level will fall and interest rates drop.
• D) Volatility increases the probability that a nation will repay and increases the need to borrow, so the amount of debt level and interest rates rise.

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Definitions:

Halo Effect

Tendency of an interviewer to allow positive characteristics of a client to influence the assessments of the client’s behavior and statements.

First Meeting

an initial encounter between two or more individuals or parties, often setting the tone for a future relationship or interaction.

Unstructured Interviews

A qualitative data collection method where the interviewer asks open-ended questions, allowing for spontaneous and natural responses.

Follow-Up Questions

Questions asked after an initial query or study to clarify, expand on, or check the accuracy of previously gathered information.