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Answer: Country Z
## Explanation Real interest rates are influenced by: 1. **Expected GDP growth rate** - Higher growth typically leads to higher real interest rates 2. **Volatility of GDP growth** - Higher volatility (risk) typically requires higher real interest rates as compensation Comparing the countries: - **Country X**: 4% growth, 15% volatility - **Country Y**: 6% growth, 10% volatility - **Country Z**: 6% growth, 15% volatility 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