Step 1
Work It Out
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You must read each slide, and complete any questions on the slide, in sequence.
Which of the following are examples of debt overhang? Which examples are likely to lead to a cutback in spending?
Your uncle starts a restaurant, borrowing to fund his investment. The restaurant fails, and your uncle must shut down but still must pay his debt.
The following statement an example of a debt overhang and spending will .
Correct! For further review see section, "Why Are Banking-Crisis Recessions So Bad."
Sorry, this is an example of debt overhang because your uncle is left with high debt and diminished assets. Your uncle will likely cut back on his spending in order to repay the debt from the failed restaurant and to rebuild his assets. For further review see section, “Why Are Banking-Crisis Recessions So Bad.”
The following statement ______ an example of a debt overhang and spending will ______. Your uncle starts a restaurant, borrowing to fund his investment. The restaurant fails, and your uncle must shut down but still must pay his debt.
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