The Risk Premium

question 76

Multiple Choice

The risk premium

• A)is slightly higher on U.S. Treasury securities than on the bonds of large corporations.
• B)is not subject to federal income tax.
• C)compensates savers both for default risk and for illiquidity of assets.
• D)falls whenever illiquidity rises.

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Definitions:

Public Savings

The portion of national savings held by the government, typically reflected in budget surpluses.

Personal Income

The total amount of income earned by an individual from all sources before any taxes are deducted.

Autonomous Consumption

Describes the expenditure that consumers will make even when they have no income, considering it as a basic level of consumption driven by needs.

Saving

The act of setting aside money for future use, reducing current consumption.