A Deficit Will Burden Future Generations

question 182

Multiple Choice

A deficit will burden future generations

• A)because the obligation to pay it off must be faced sooner or later.
• B)if it produces higher interest rates when the economy is near full employment.
• C)because future generations will have to pay taxes to fund the interest payments to Americans who hold the debt.
• D)All of the above are correct.

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Definitions:

Cost of Equity

Cost of equity is the return a company requires to decide if an investment meets capital return requirements and can be seen as the return on equity that shareholders expect for their investment risk.

Flotation Cost

The total costs incurred by a company in issuing new securities, including underwriting, legal, registration, and other expenses.

Cost of Capital

The rate of return a company must pay to its shareholders and debt holders, representing the cost of obtaining funds to finance its operations.

Long-Term Funds

Investments or sources of financing that are provided or required for a duration exceeding one year.