Question #20
Reading: Reading 6 Economic Growth
PDF File: Reading 6 Economic Growth.pdf
Page: 10
Status: Unattempted
Correct Answer: A
Question
Hannah Burton is a fixed income analyst and has questioned her supervisor as to why she needs to spend so much time forecasting potential GDP and its growth rate. Her supervisor replies: "Positive growth in potential GDP leads to an expectation of rising income, leading in turn to higher current savings. Positive growth in potential GDP therefore implies higher real asset returns and higher real interest rates. Hannah's supervisor is least accurate regarding:
Answer Choices:
A. higher real asset returns
B. higher real interest rates
C. higher current savings
Explanation
Positive growth in potential GDP leads to an expectation of rising incomes leading to
higher current consumption, not higher savings. To encourage savings, investments must
offer higher real asset returns and higher real interest rates.