Suppose a Friend Asks for a Loan of $100, Which

question 82

Multiple Choice

Suppose a friend asks for a loan of $100, which you refuse. He then asks for a loan of $25. What is the likely outcome?

• A) You are more likely to refuse the second request than if you had not been asked for the first.
• B) You are more likely to grant the second request than if you had not been asked for the first.
• C) There will be no effect of the first request on the probability of your granting the second.
• D) The first and second requests will yield the same probability of acceptance or refusal.

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Definitions:

Buying Bonds

The act of purchasing debt securities issued by governments or corporations, which pay interest over a fixed period.

Money Supply

The aggregate sum of funds present in an economy at a given moment, encompassing cash, bank deposits, and various readily accessible assets.

Interest Rate

The percentage of a sum of money charged for its use, often expressed as an annual percentage.

Reserve Requirements

The minimum proportion of customer deposits and notes that a bank must hold as reserves rather than lending out, as mandated by central banking authorities.