Because People's Incomes Vary Over the Life Cycle and Because

question 3

Multiple Choice

Because people's incomes vary over the life cycle and because there are transitory shocks to people's incomes, the standard measures of income distribution

• A) exaggerate the inequality of living standards.
• B) could exaggerate or understate the inequality of living standards depending on whether the transitory shocks are positive or negative.
• C) understate the inequality of living standards.
• D) accurately represent the true inequality of living standards.

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Definitions:

Securitization

The financial process of pooling various types of contractual debt, such as mortgages or loans, and selling them as consolidated financial instruments to investors.

Securities Not Collateralized

Financial instruments or investments that are not backed by a physical asset or security, making them potentially riskier for investors since there is no guarantee of repayment through asset seizure.

Factoring

A financial transaction where a business sells its accounts receivable to a third party (the factor) at a discount, in order to receive immediate cash.

With Recourse

A term indicating that if the primary party defaults on an obligation, the lender or third party has the right to seek repayment from the signer of the instrument.