If the Collateral Constraint Does NOT Bind, Then in Response

question 12

Multiple Choice

If the collateral constraint does NOT bind, then in response to a decrease in the price, p, of the asset

• A)the consumer increases current consumption and decreases future consumption.
• B)the consumer increases both current and future consumption.
• C)the consumer decreases current consumption and future consumption is unchanged.
• D)the consumer decreases both current and future consumption.
• E)the consumer leaves current consumption unchanged and increases future consumption.

Understand the concept of autarky and its implications for a country’s consumption and production possibilities.

Identify factors that determine the pattern of international trade.

Understand the effects of international trade on a country's production and consumption possibilities frontiers.

Recognize the impact of economies of scale on the benefits from trade.

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Definitions:

Bond

A fixed income instrument that represents a loan made by an investor to a borrower, typically corporate or governmental.

American Options

A type of options contract that allows the holder to exercise it at any time before the expiration date.

Call Option

A financial contract giving the buyer the right, but not the obligation, to purchase a stock, bond, or other instrument at a specified price within a specific time period.

Put Option

A financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a specified time frame.