In a Two-Period Model with Default, If the Market Interest

question 51

Multiple Choice

In a two-period model with default, if the market interest rate is low, then

• A) default is more likely.
• B) there is no effect on the nation's default decision.
• C) default is less likely.
• D) the income effect is larger than the substitution effect.
• E) there is more inflation.

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Definitions:

Financing Activities

Activities that result in changes in the size and composition of the contributed equity and borrowings of the entity, including issuing debt, equity transactions, and paying dividends.

Direct Approach

A method of preparing the statement of cash flows where major categories of gross cash receipts and payments are reported.

Indirect Approach

A method of communication or problem-solving that is not straightforward, often involving suggestion or implication rather than direct statements.

Investing Activities

Financial operations that involve the purchase and sale of long-term assets and other investments not considered cash equivalents.