Everything Else Held Constant,when Financial Frictions Increase,the Real Cost of Borrowing

question 99

Multiple Choice

Everything else held constant,when financial frictions increase,the real cost of borrowing ________ so that planned investment spending ________ at any given inflation rate.

• A)increases;falls
• B)decreases;falls
• C)decreases;rises
• D)increases;rises

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Definitions:

Selling

The process of giving or exchanging an item of value for money; a fundamental concept in economics and commerce.

S&P 100 Index

Is a stock market index that measures the stock performance of 100 major companies listed on stock exchanges in the United States.

Exercise Price

The predetermined price at which the holder of an option can buy (call option) or sell (put option) the underlying security or commodity.

Option

An option is a financial derivative that represents a contract sold by one party to another, offering the right, but not the obligation, to buy or sell a security at an agreed-upon price within a certain period of time.