Question #26
Reading: Reading 39 Economics and Investment Markets
PDF File: Reading 39 Economics and Investment Markets.pdf
Page: 9
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
Rapidly developing economies like India and China have high GDP growth rates and therefore are most likely to have a:
Answer Choices:
A. Low real rate, high inter-temporal rate of substitution and a low rate of current borrowing by investors
B. High real rate, low inter-temporal rate of substitution and a high rate of current borrowing by investors
C. High real rate, low inter-temporal rate of substitution and a low rate of current consumption
Explanation
High GDP growth leads to higher future expected incomes and therefore high rate of
current consumption (low savings, high borrowings, and an increase in the real default-
free rate of interest) and a low inter-temporal rate of substitution.