If Households Fail to Recognize That Debt-Financing Represents a Future

question 14

Multiple Choice

If households fail to recognize that debt-financing represents a future liability (in the form of higher taxes) ,they will tend to consume

• A)less and pass less net wealth on to future generations.
• B)more and pass more net wealth on to future generations.
• C)less and pass more net wealth on to future generations.
• D)more and pass less net wealth on to future generations.

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Definitions:

Forward Contracts

Customized contracts between two parties to buy or sell an asset at a specified price on a future date, used for hedging or speculation.

Futures Contracts

Agreements for the future delivery of assets like commodities or securities at a price fixed upon the contract's signing.

Option Contracts

Financial derivatives that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a certain date.

Swap Contracts

Financial agreements between two parties to exchange cash flows or other financial instruments for a specified period of time.