In the Two-Period Model with Default, Default Will Occur When

question 58

Multiple Choice

In the two-period model with default, default will occur when

• A) the government debt is larger than the total taxes.
• B) the government surplus is smaller than national income.
• C) the government debt is smaller than the discounted value of the future penalty from defaulting.
• D) the government debt is larger than the discounted value of the future penalty from defaulting.
• E) the government surplus is smaller than the discounted value of the future penalty from defaulting.

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Definitions:

Present For Payment

The act of making a financial instrument, like a check or promissory note, available to the person obligated to pay on or by its due date.

Drawee Bank

is the bank upon which a check is drawn, meaning it is the bank where the check issuer has an account from which the check amount is to be paid.

Primarily Liable

The main responsibility or obligation to pay a debt or fulfill a contractual duty.

Secondary Liability

Legal responsibility imposed on a party for the actions of another, based on a relationship or specific circumstances.