If Consumers Use Their House as Collateral for Lending and the Value

question 26

Multiple Choice

If consumers use their house as collateral for lending and the value of housing in general falls, then

• A)lending and aggregate consumption increase.
• B)borrowing increases further to maintain current consumption.
• C)lending and aggregate consumption decrease.
• D)lenders prefer to become borrowers.
• E)lending is unchanged and future consumption increases.

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Definitions:

Net Realizable Value

The estimated selling price of goods minus the cost of their sale or completion.

Allowance for Doubtful Accounts

An accounting provision made by a company to account for customers who may not be able to make required payments, affecting the accounts receivable balance.

Accounts Receivable

Money owed to a company by its customers for products or services that have been delivered but not yet paid for.

Adjusting Entry

An accounting journal entry made at the end of a period to record any unrecognized income or expenses for that period, ensuring accuracy of the financial statements.