Question

In macroeconomics, _____________________________ describes a situation where a bank's liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.

A. diversification
B. reserve ratio
C. an asset-liability time mismatch
D. a negative net worth

Answer 1

An asset-liability time mismatch refers to a situation in macroeconomics where a bank's liabilities can be withdrawn in the short-term while its assets are being repaid in the long-term.

Step-by-step explanation:

An asset-liability time mismatch in macroeconomics refers to a situation where a bank's liabilities, such as deposits, can be withdrawn in the short-term while its assets, like loans, are being repaid in the long-term.

This can pose a problem for banks if interest rates rise because they may have to pay higher interest rates to depositors while receiving lower interest rates on their long-term loans.

To mitigate this risk, banks can choose to diversify their loans or hold a greater proportion of their assets in bonds and reserves.