Figure 14.1: BAA and 10-Year Bonds, 2006-2010
-Consider Figure 14.1. The difference between these two curves can be interpreted as:
A) the financial friction.
B) inflation expectations.
C) the risk-free rate.
D) a market imperfection.
E) the prime lending rate.

Question

Figure 14.1: BAA and 10-Year Bonds, 2006-2010  
-Consider Figure 14.1. The difference between these two curves can be interpreted as:
A) the financial friction. 
B) inflation expectations. 
C) the risk-free rate. 
D) a market imperfection. 
E) the prime lending rate.

Quizplus · Accepted Answer

The difference between two curves in a financial context often represents a financial friction, which is an impediment to the free flow of capital or credit in the market.

Figure 141: BAA and 10-Year Bonds, 2006-2010