Whenever economic shocks are asymmetric, affecting only one nation among all the nations that are mutual investors, asset diversification:
A) will have substantial benefits in lessening the shocks and smoothing consumption.
B) will have no measurable benefits in lessening shocks.
C) will probably backfire as one nation gains while the other loses.
D) creates a tense atmosphere in which profits take precedence over human welfare.

Question

Quizplus · Accepted Answer

Asset diversification can help lessen the impact of economic shocks by spreading the risk across different assets and markets. This can provide a buffer against losses in a particular country or region and help smooth consumption. Therefore, option A is the correct choice. Option B is incorrect as diversification does provide measurable benefits. Option C is incorrect as diversification is not a zero-sum game and can benefit all parties involved. Option D is incorrect as diversification does not necessarily create a tense atmosphere or prioritize profits over human welfare.

Whenever Economic Shocks Are Asymmetric, Affecting Only One Nation Among