If an Individual Has No Access to Credit Markets

question 79

Multiple Choice

If an individual has no access to credit markets:

• A) his or her marginal propensity to consume is one.
• B) he or she saves much less.
• C) he or she can consumption smooth.
• D) his or her marginal propensity to consume is equal to 1/T if he or she lives T periods.
• E) his or her future consumption is equal to zero.

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Definitions:

Credit Terms

Statements of the credit period and any discounts offered—for example, 2/10, net 30.

Discount Period

The time interval between when a bill of exchange is issued and its payment date, during which the bill is sold at a discount from face value.

2/10, Net 30

A common credit term indicating that a buyer can take a 2% discount on the invoice price if payment is made within 10 days, otherwise, the full invoice amount is due in 30 days.

Accruals

Adjustments in accounting for income that has been generated but not yet documented, and for costs that have been accrued but not yet documented.