When Deficits Are Run Continuously with a Constant Nominal Interest

question 133

True/False

When deficits are run continuously with a constant nominal interest rate,nominal interest payments on the total nominal debt will become smaller relative to future deficits,ceteris paribus.

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Definitions:

Stated Interest Rate

The interest rate declared on a bond or loan agreement, not necessarily reflecting the market interest rate or effective interest rate.

Present Value

The current worth of a future sum of money or stream of cash flows, discounted at a specific rate.

Actuarial Information

Data and calculations used by actuaries to assess risks and determine premiums or forecasts for insurance and other industries.

Bond Issuance

The process by which a borrower issues bonds to lenders or investors in order to raise capital, involving agreements to repay the borrowed amount plus interest.