Explain Why, in the Long Run, an Increase in Government

question 138

Essay

Explain why, in the long run, an increase in government spending will not work well to combat a negative real shock.

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Definitions:

Yield to Maturity

The total return anticipated on a bond if the bond is held until its maturity date, taking into account both interest payments and capital gain or loss.

Term to Maturity

The remaining time until a debt instrument, such as a bond or loan, reaches its due date and the principal must be repaid.

Priced

Determination of the value or amount that must be paid to acquire a good, service, or asset.

Perpetual Bonds

Bonds that do not have a maturity date, allowing them to potentially pay interest forever, making them a form of permanent debt capital for the issuer.