If Congress Votes to Increase Government Purchases and at the Same

question 166

Multiple Choice

If Congress votes to increase government purchases and at the same time decrease personal income taxes, they

• A)have decided to balance the federal budget.
• B)have voted for the proper policy to counteract a recessionary gap.
• C)have voted for the proper policy to counteract an inflationary gap.
• D)are trying to achieve a federal budget surplus.

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Definitions:

Forward Rates

The interest rates implied by current zero-coupon bond prices for periods in the future.

Future Short Interest Rate

An estimation or prediction of the interest rates at a future point in time, often used in the valuation of interest rate derivatives.

Stripped Treasuries

Stripped Treasuries are US Treasury securities whose principal and interest payments have been separated to create two new securities, allowing investors to hold and trade the components separately.

Coupon Paying Treasuries

U.S. Treasury securities that offer periodic interest payments until maturity, at which point the face value is repaid to the holder.