Question

1. compound interest is:

a. the interest rate adjusted for inflation.
b. the price of using someone elses money.
c. the original amount of money deposited or invested.
d. interest that you earn on your principal and on the interest youve already earned.

1. according to the paradox of thrift:

a. being frugal does not pay off in the long run.
b. government should save money during a recession and increase spending as the economy recovers.
c. during a recession it might be in your self - interest to reduce spending and increase saving, but those same actions might make a recession more severe.
d. during a recession it might be in your self - interest to reduce saving and increase spending, but those same actions might make a recession more severe.

1. the result of a government crowding out the loanable funds market means:

Explanation:

• For question 5: Compound interest is the interest calculated on the initial principal and also on the accumulated interest of previous periods.
• For question 6: The paradox of thrift states that during a recession, individual attempts to save more (thrift) can lead to a fall in aggregate demand, which in turn can deepen the recession as lower spending reduces economic activity.

Answer:

1. D. Interest that you earn on your principal and on the interest you've already earned.
2. C. During a recession it might be in your self - interest to reduce spending and increase saving, but those same actions might make a recession more severe.