If the Real Deficit Is $200 Billion, the Inflation Rate

question 121

Multiple Choice

If the real deficit is $200 billion, the inflation rate is 2.5 percent, and total debt is $2 trillion, then the nominal deficit is:

• A)$100 billion.
• B)$250 billion.
• C)$300 billion.
• D)$350 billion.

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Definitions:

Expected Inflation

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling, as anticipated by consumers, investors, and economists.

Cost of Capital

The Cost of Capital is the cost of a company's funds (both debt and equity), or, from an investor's point of view, the required rate of return on a portfolio company's existing securities.

Specific Financing

Financing that is intended for a particular purpose or project, with clear specifications and usually backed by specific collateral.

After-Tax Cost

The expense of any financial obligation or investment after accounting for the effects of taxes.