In the Absence of Financial Frictions,________

question 78

Multiple Choice

In the absence of financial frictions,________.

• A)interest rates for different borrowers move closely together
• B)all loans in the economy are transacted at a common interest rate
• C)the level of output is not affected by changes in the real interest rate
• D)an increase in inflation leads to a decrease in the real interest rate

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Definitions:

Contract Size

The deliverable quantity of commodities or financial instruments specified in a contract that an investor agrees to buy or sell.

Hedge Strategy

Investment strategies designed to reduce the potential for loss in an investment portfolio by making counterbalancing investments or using financial instruments like options and futures.

Short Corn Futures

A financial contract obligating the seller to deliver corn at a future date, typically used to hedge or speculate on falling corn prices.

Shorting Index Futures

The practice of selling index futures contracts with the expectation that the underlying index will decline in value, aiming to profit from the decrease.