Explanation:
Real interest rates are influenced by:
Comparing the countries:
Country Z has both high growth (6%) and high volatility (15%), suggesting it would have the highest real interest rates to compensate for both growth opportunities and economic risk.
Correct Answer: C - Country Z combines high expected growth with high volatility, both factors that would drive real interest rates higher.
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An analyst gathers the following economic data about three countries:
| Country X | Country Y | Country Z |
|---|---|---|
| Expected GDP growth rate: | 4% | 6% |
| Expected volatility of the GDP growth rate: | 15% | 10% |
Based on this information, which country most likely has the highest real short-term interest rates?
A
Country X
B
Country Y
C
Country Z