In the Basic AD-SRAS Model, the Assumption Is Made That

question 27

Multiple Choice

In the basic AD-SRAS model, the assumption is made that

• A)bank loans are imperfect substitutes for other forms of finance.
• B)all sources of finance are perfect substitutes.
• C)the real interest rate overstates the cost of funds to borrowers.
• D)the real interest rate understates the cost of funds to borrowers.

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Definitions:

Present Value

Refers to the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Annuity

An investment vehicle that offers a steady flow of income to an individual, commonly utilized in retirement planning strategies.

Interest Rate

This is the percentage of a loan or deposit amount charged as interest to the borrower or paid to the investor, respectively, typically expressed on an annual basis.

Equivalent

Equivalent refers to something being equal in value, function, or meaning, often used in financial contexts to compare different financial instruments or investments.