The Owner of a Small Business Applies for a Bank

question 33

Multiple Choice

The owner of a small business applies for a bank loan and tells the loan officer that the funds will be used to expand inventory for the upcoming holiday season. The small business finds itself in need of additional funds to meet the monthly rent for the next quarter and the owner uses the loan proceeds to pay the rent. This is an example of:

• A) liquidity risk.
• B) default risk.
• C) a lack of diversification for the bank.
• D) information asymmetry.

---

Definitions:

Mustard Recall

A situation where mustard products are withdrawn from the market due to safety concerns like contamination or mislabeling.

Demand for Relish

Refers to the consumer desire and willingness to pay for relish, a condiment, which can be influenced by factors such as price, consumer preferences, income levels, and substitute goods.

Decrease in Demand

A condition where consumers show less interest in purchasing a product, leading to a leftward shift in the demand curve.

Substitute Goods

Products or services that can be used in place of each other, offering consumers choices when making purchases.