Economics EOC 10

CFA Level III Economics
#1

Looking at EOC 10 and their comparing the US to EUrope with regards to different economic measures.

One of them is causing confusion – Economic impact of the central bank.

For Europe the short term interest rates are expected to increase slightly to 2.8 from 2.7

In the US, the short term interest rates are expected to increase substantially from 1 to 2.2.

They’re both initially in s stimulative environment and they’re asking which holds a relative advantage.

I went with Europe because the short term interest rate is increasing substantially which may lead to a restrictive policy. But the answer is the US has the advantage because it’s short term interest rate is lower in absolute value.

I would not have considered the absolute value between the two countries and I think my logic seems more intuitive.

Any help is much appreciated.

#2

US is in much more attractive phase. Returns increase from 1% to 2.2% attracting foreign capital and providing higher returns. Whereas, the Eur albeit offers high rates, the incremental rate increase does not offer much yield advantage

#3

also Eur not increasing substantially…it’s peaked from what it looks like

#4

My thinking is that increasing the interest rate parallels a restrictive monetary policy for the US. Which would decrease the relative advantage for the US company.

I would think that Eur was going to a more neutral monetary policy with a slight increase in short term rates.

Looking at these two Europe would hold the advantage.