Suppose a Country Has Been Running a Persistent Government Budget

question 109

Multiple Choice

Suppose a country has been running a persistent government budget deficit. If the deficit is reduced, but remains positive

• A) government debt will increase.
• B) government debt will decrease.
• C) the country will experience a budget surplus.
• D) interest payments on the debt immediately will decrease.

---

Definitions:

Cross-Hedging

A strategy used to manage risk by hedging a position in one asset with a position in another asset that has a similar price movement but is not identical.

Bauxite

The primary ore of aluminum, consisting primarily of aluminum oxide minerals, clay minerals, and insoluble materials.

Aluminum Ore

The natural mineral compound from which aluminum is extracted, primarily bauxite.

Aluminum Futures

Contracts to buy/sell aluminum at a future date at a price agreed upon today, used for hedging or speculation on the aluminum market.