Choose the Statement That Is Incorrect

question 44

Multiple Choice

Choose the statement that is incorrect.

• A)A financial institution can be solvent but illiquid.
• B)A firm is illiquid if it has made long-term loans with borrowed funds and is faced with a sudden demand to repay more of what is has borrowed than its available cash.
• C)Insolvency and illiquidity were at the core of a global financial meltdown in 2007-2008.
• D)A financial institution's net worth is the market value of what it has lent minus the market value of what it has borrowed.
• E)If a financial institution's net worth is negative, the institution is solvent.

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Definitions:

Economy

An organized system of production, distribution, and consumption of goods and services within a specific geographical area, involving various agents and market forces.

Circular-Flow Diagram

A model that illustrates the flow of goods and services and money between households and businesses in an economy.

Households

Economic units comprising all persons who occupy a housing unit, responsible for making consumption and investment decisions.

Demanders

Individuals or entities that express a willingness and ability to purchase goods or services at a given price.