Asset transformation can be described as
A) borrowing long and lending short.
B) borrowing short and lending long.
C) borrowing and lending only for the short term.
D) borrowing and lending for the long term.
B
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In the two-period model, the budget constraint is kinked for all of these reasons, except
A) the real interest rate is greater than zero. B) there are costs to banks from lending and borrowing. C) there is asymmetric information in the credit market. D) there is limited commitment in the credit market.
A country will gain relatively more from trade when
A) trade is regulated. B) the world price is close to the country's opportunity cost of the good. C) the world price is below the country's opportunity cost of the good. D) the world price is much greater than the country's opportunity cost for the good.