Aggregation Is Important in Macroeconomics Because

question 35

Multiple Choice

Aggregation is important in macroeconomics because

• A) it is a basic tool of reasoning
• B) we need a model with as much information as possible
• C) it allows us to comprehend the entire economy in all its detail
• D) it allows us to keep different markets separate in our minds
• E) we need to consider the entire economy at once with a model as simple as possible

---

Definitions:

Financial Leverage

Rephrased: Utilizing debt to finance additional assets, with the aim of increasing returns to equity holders, while also increasing financial risk.

Interest Tax Shield

The decrease in what one owes in income taxes by removing the cost of debt interest from the taxable income figure.

Capital Structure Puzzle

The term refers to the challenge and debate over the optimal composition of a company's debt and equity financing to maximize its value.

Optimal Capital Structure

The best mix of debt, preferred stock, and common equity that maximizes a company’s stock price.