During the Recession Phase of the Business Cycle,business Firms Become

question 87

Multiple Choice

During the recession phase of the business cycle,business firms become pessimistic about their future earning capacity as do banks.Nominal interest rates fall during recessions.Investment lending could be expected to

• A)rise if the change in future earnings is thought to be greater than the change in interest payments.
• B)stay the same.
• C)fall.
• D)fall if the change in future earnings is thought to be greater than the change in interest payments.

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Definitions:

Compounded Quarterly

This refers to the process of applying interest to an initial amount of money (principal) four times a year, at the end of each quarter.

Economically Equivalent

Refers to different financial transactions or investments that have the same economic effect or value, despite differing in structure or form.

Scheduled Payment

A pre-determined amount of money that is paid at regular intervals under the terms of a loan or lease agreement.

Compounded Semi-Annually

Interest on a loan or investment calculated twice a year, adding each interest payment to the principal.