The Practice of Borrowing Short and Lending Long

question 346

Multiple Choice

The practice of borrowing short and lending long

• A) pools risk.
• B) minimizes the cost of monitoring borrowers.
• C) creates liquidity.
• D) All of the above answers are correct.

---

Definitions:

Real Interest Rate

The interest rate that has been adjusted for inflation, showing the real cost of borrowing or the real yield on an investment.

Year 2 Dollars

Year 2 dollars refer to the value of currency adjusted for inflation to a base year's purchasing power, here implicitly indicated as "Year 2."

Year 1 Dollars

Refers to the value of money expressed in terms of the purchasing power of a specified base year, used to adjust for inflation over time.

Food Expenditures

The total amount of money spent on food for consumption by individuals, households, or specific groups within a society.