In the Two-Period Model with Default, If the Nation Defaults

question 16

Multiple Choice

In the two-period model with default, if the nation defaults on its debts in the future period

• A) there are no consequences.
• B) it bears a cost v.
• C) collateral is seized.
• D) it faces a higher interest rate.
• E) the central bank must bail out the government.

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Definitions:

Chlorine

A chemical element with symbol Cl and atomic number 17, a reactive halogen that is used as a disinfectant and in the manufacture of a wide range of products.

Sodium

A chemical element with symbol Na and atomic number 11, known for its role in nerve impulse transmission and muscle contraction.

Covalent Compound

A compound in which atoms are held together by covalent bonds; covalent compounds consist of molecules. Compare with ionic compound.

Methane

A colorless, odorless gas, CH4, that is the simplest alkane and a major component of natural gas, contributing to greenhouse gas emissions.