If a Budget Deficit Increases Interest Rates, It Is Possible

question 158

Multiple Choice

If a budget deficit increases interest rates, it is possible that investment will

• A)fall, leading to a larger capital stock.
• B)fall, so that there is a smaller capital stock.
• C)rise, because investment is directly related to interest rates.
• D)rise, because investment is more attractive when interest rates are higher.

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Definitions:

Retained Earnings

Retained earnings represent the portion of net earnings not paid out as dividends but retained by the company to be reinvested in its core business or to pay debt.

Income Statement

A financial statement that shows a company's revenues, expenses, and profits or losses over a particular period.

Rent Expense

The cost incurred for leasing a property or equipment used in the operation of a business.

Fees Earned

Income generated from providing services, often used in professional practices like law firms, consulting firms, and architectural firms.