In the Two-Period Model with Default

question 25

Multiple Choice

In the two-period model with default

• A)default occurs when consumption is high.
• B)default occurs when investment is high.
• C)default occurs when the real interest rate is low.
• D)default occurs when government spending is high.
• E)default occurs when government spending is low.

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Definitions:

Ordinary Income

Income earned from standard operations of a business or through wages, as opposed to capital gains or investment income.

Profitability of Operations

An assessment of how efficiently a company generates profit from its core business activities, excluding peripheral activities.

EBIT

An indicator of company profit, Earnings Before Interest and Taxes, which omits the costs related to interest and taxes.

Trade Credit

A financing arrangement where a buyer is allowed to purchase goods or services and pay the supplier at a later scheduled date.