An Increase in the Budget Deficit Makes Domestic Interest Rates

question 4

Multiple Choice

An increase in the budget deficit makes domestic interest rates

• A)rise because the supply of loanable funds shifts left.
• B)fall because the supply of loanable funds shifts left.
• C)rise because the demand for loanable funds shifts right.
• D)fall because the demand for loanable funds shifts right.

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Definitions:

Constant Growth DDM

A valuation model that estimates the value of a dividend-paying stock by using predicted dividends that grow at a constant rate in perpetuity.

Intrinsic Value

The inherent or true value of a security, based on underlying assets and earnings, independent of its market value.

Dividends

Payments made by a corporation to its shareholder members, typically derived from the company's profits.

ROE

Return on Equity, a measure of financial performance calculated by dividing net income by shareholders' equity, indicating how effectively management is using a company’s assets to create profits.