Consider a Government with a Positive Stock of Debt

question 8

Multiple Choice

Consider a government with a positive stock of debt. If the growth rate of real GDP exceeds the real rate of interest on government bonds, then to keep the debt- to- GDP ratio constant the

• A)government must implement an expansionary fiscal policy.
• B)nominal interest rate must be constant.
• C)money supply should be increased at a constant rate.
• D)government must have a primary budget deficit.
• E)government must have a primary budget surplus.

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Definitions:

Swap Contract

A financial agreement where two parties exchange liabilities or cash flows from two different financial instruments for a set period.

Forward Contracts

Customized contracts between two parties to buy or sell an asset at a specified price on a future date.

Stock Brokers

Professionals or firms that execute buy and sell orders for stocks and other securities on behalf of their clients, in exchange for a fee or commission.

Swap Transactions

Financial agreements between two parties to exchange cash flows or other financial instruments over a specified period.