Use the Following to Answer Questions

question 201

Multiple Choice

Use the following to answer questions:
-(Figure: The Market for Loanable Funds III) Use Figure: The Market for Loanable Funds III. If the government in a closed economy finances deficits by selling bonds and it decides to decrease defense spending by $200 billion, the equilibrium interest rate will:

• A) rise to 18%.
• B) not change.
• C) fall to 13.5%.
• D) fall to 12%.

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Definitions:

Future Value

The value of an investment at a specified date in the future, considering factors like interest rates and time.

Present Value

The contemporary valuation of a future quantity of money or cash flow series, assuming a specific interest rate.

Annuity Due

A type of annuity payment where the payment is due at the beginning of each period, rather than at the end.

Expected Cash Flows

The projected amounts of money to be received or paid out by a business within a specified period.