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Scenario 32-2 ​

question 180

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Scenario 32-2

Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes.
-Refer to Scenario 32-2. What does this policy change do to net capital outflows? Defend your answer.


Definitions:

Preferred Stock

A class of stock that typically has a priority claim on dividends and assets in the event of liquidation over common stock.

Yield

The income return on an investment, such as the interest or dividends received, expressed as an annual percentage of the investment’s cost.

Cost of Debt

The effective rate that a company pays on its current debt, including loans and bonds, which can be measured before or after taxes.

Annual Coupon

The annual interest payment made to bondholders, expressed as a percentage of the bond's face value.

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