A Good Economic Theory

question 29

Multiple Choice

A good economic theory:

• A)​rests on realistic assumptions.
• B)​explains economic behavior and predicts well.
• C)​can best be expressed mathematically.
• D)​always provides a highly detailed analysis of an economic sector.

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Definitions:

Variable-Rate Loan

A loan where the interest rate can change, based on an underlying benchmark or index that reflects the cost to the lender of borrowing on the credit markets.

Increases In Interest Rates

A scenario where central banks or financial institutions decide to raise the cost of borrowing money.

Cap

An upper limit set on the amount of money that can be charged or paid in a certain situation, such as interest rates on a loan or fees.

Cross-Hedging

Cross-hedging involves using a hedge to manage risk by investing in a financial instrument that is not directly correlated to the underlying asset but has similar price movements.