The Paradox of Leverage states that:
a. Excessive leverage is really just an illusion. It occurs when companiesmisestimat e the value of their assets and equity.
b.When a single firm, in isolation, tries to de-lever its balance sheet, the net effect is often for its leverage to rise.
c. Leverage is a puzzle (i.e., a paradox) and always will be.
d. When a large portion of the market tries to de-lever its balance sheet, asset prices fall, thereby causing leverage to increase (not decrease).
e. None of the above.
Question 2
Automatic stabilizers have the effect of
a. Increasing aggregate demand when the nation is below full employment.
b. Restraining the decline in demand but not stimulating any increase in aggregate demand that would move the nation back toward equilibrium.
c. Causing government spending to rise and taxes to rise as a nation moves into a recession.
d. Destabilizing a nation, once you consider the active deficits or surpluses they cause.
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