All Else Equal,an Increase in the Government's Budget Deficit Accompanied

question 17

Multiple Choice

All else equal,an increase in the government's budget deficit accompanied by a decrease in corporate taxes would definitely result in

• A) an increase in the equilibrium real interest rate.
• B) a decrease in the equilibrium real interest rate.
• C) an increase in the equilibrium level of saving and investment.
• D) a decrease in the equilibrium level of saving and investment.

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Definitions:

Internal Rate of Return

A financial metric used to estimate the profitability of potential investments, calculating the discount rate that makes the net present value of all cash flows from the investment equal to zero.

Present Value

The present value of a future amount of money or a series of cash flows, calculated using a given interest rate.

Annuity

A finance-related product designed to issue a predetermined series of payouts to an individual, typically aimed at serving as an income source for retirement.

Net Present Value

A calculation that compares the present value of cash inflows to the present value of cash outflows over a period of time, used in capital budgeting to assess profitability of investments.