The level toward which the economy is moving and where it will stay unless spending patterns of the economy will change is called the equilibrium level of output and income

If the Ricardo-Barro effect is present, a government budget deficit raises the equilibrium real interest rate by ________ and decreases the equilibrium quantity of investment by ________ than if the Ricardo-Barro effect is absent

A) more; more B) more; less C) less; more D) less; less

Answer the following statements true (T) or false (F)

1. Arbitrage refers to the buying and selling activities that cause an equalization of the rates of return on assets that have substantially different characteristics. 2. If investors have two identical assets that have different rates of return, the investors will sell the asset with the higher rate of return to buy the asset with the lower rate of return. 3. Arbitrage activities will make the price of the asset with the higher initial return increase, while the price of the asset with the lower return will decrease. 4. Risk in financial economics refers mainly to the chance that an investment could lose value. 5. Diversification is an investment strategy that seeks to reduce the overall risk in an investment portfolio by selecting a group of assets whose risks differ from one another.