Scarcity is a temporary state of insufficiency that ends with new innovation

Suppose an individual firm is comparing two investments, a one year bond from a U.S. firm paying 4% or a one year bond from a German firm which is paying 6%. The current dollars-per-euro rate is 0.75, and the expected rate in one year is 0.72

If the expected rate is correct, which investment will receive the higher return? A) The U.S. Bond B) The German Bond C) They will have the same return. D) This cannot be determined from the information given.

The rational expectations hypothesis assumes that individuals will

a. never make forecasting errors. b. be as likely to overestimate as to underestimate the future rate of inflation. c. continually make systematic forecasting errors. d. ignore past forecasting errors when formulating predictions.