Suppose the Real Rate of Interest on Government Bonds Is

question 116

Multiple Choice

Suppose the real rate of interest on government bonds is 4% and the growth rate of real GDP is 2%.If the government has a positive stock of outstanding debt and its policy objective is to hold the debt-to-GDP ratio constant at its current level,it must

• A)eliminate the overall deficit.
• B)run an annually balanced budget.
• C)run a cyclically balanced budget.
• D)run a primary budget deficit.
• E)run a primary budget surplus.

---

Definitions:

Net Operating Income

a gauge of a company's financial performance, calculated as gross income minus operating expenses, excluding taxes and interest.

Present Value

The present worth of a sum of money or cash flows expected in the future, based on a certain rate of return.

Cash Flow

The combined value of financial transactions into and out of an enterprise, crucially affecting its cash reserves.

Present Value

is the current worth of a future sum of money or stream of cash flows given a specified rate of return.