An Increase in Financial Frictions Results in ________

question 35

Multiple Choice

An increase in financial frictions results in ________.

• A)an increase in output and inflation
• B)a rise in the interest rate set by monetary policy
• C)a decline in the real interest rates faced by households and firms
• D)a decline in the interest rate set by monetary policy

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Definitions:

Discount Date

The last day on which a cash discount may be taken. The day on which a note is discounted (sold).

Due Date

The final day an invoice is to be paid. After that day the buyer may be charged interest. Also, the date by which a loan is to be repaid.

Remittance

Amount that a buyer actually pays after deducting a cash discount.

Discount Period

A certain number of days after the invoice date, during which a buyer may receive a cash discount. The time between a note’s discount date and its maturity date.