To Compensate for the Uncertainty of Future Interest Rates and the Fact

question 152

Multiple Choice

To compensate for the uncertainty of future interest rates and the fact that the longer the term of a loan the higher the probability that the borrower will default, the lender typically ________.

• A) charges a higher interest rate on long-term loans
• B) reserves the right to change the terms of the loan at any time
• C) includes excessively restrictive debt provisions
• D) reserves the right to demand immediate payment at any time

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Definitions:

Labor Productivity

An indicator of economic efficiency that assesses the volume of goods and services generated (output) in relation to the total labor hours expended in their production.

Competitive Markets

Markets characterized by many buyers and sellers, free entry and exit, and products that are close substitutes, leading to price taking behavior.

Equilibrium Level

A state in a market where supply equals demand, resulting in stable prices and quantities where no economic forces are compelling a change.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a factor, such as labor or capital.