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

question 60

Multiple Choice

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

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

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Definitions:

Service Revenue

Income earned by providing services as opposed to selling physical goods.

Equipment

Tangible property used in operations, such as machinery and office hardware, which has a useful life longer than one year.

Income Statement

A financial report that shows the revenues, expenses, and profits or losses of a company over a specific period.

Balance Sheet

A financial report detailing a company's financial status at a certain moment, illustrating its assets, liabilities, and shareholders' equity.