Suppose That a Country Has an Inflation Rate of About

question 3

Multiple Choice

Suppose that a country has an inflation rate of about 2 percent per year and a real GDP growth rate of about 2.5 percent per year.Then the government can have a deficit of about

• A)5 percent of GDP without raising the debt-to-income ratio.
• B)4.5 percent of GDP without raising the debt-to-income ratio.
• C)1.25 percent of GDP without raising the debt-to-income ratio.
• D).5 percent of GDP without raising the debt-to-income ratio.

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Definitions:

Expected Future Net Cash Flows

The projection of cash receipts minus cash payments over a future period, considering all expected future transactions.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period, used in capital budgeting to assess the profitability of investments.

Compound Interest

Interest calculated on the initial principal, which also includes all of the accumulated interest of previous periods of a deposit or loan.

Cash Inflow

Money that is moving into a business from various sources over a period, such as sales, financing, or investment income.