A Deficit Resulting from the Use of Discretionary Fiscal Policy

question 101

Multiple Choice

A deficit resulting from the use of discretionary fiscal policy

• A)increases interest rates
• B)decreases interest rates
• C)increases interest rates if the effect of the decrease in the demand for money is greater than the effect of the increase in the supply of government securities
• D)increases interest rates if the effect of the decrease in the demand for money is less than the effect of the increase in the supply of government securities
• E)increases interest rates if the effect of the increase in the demand for money is greater than the effect of the decrease in the supply of government securities

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Definitions:

Debt-Ratio

is a financial metric that compares a company's total debt to its total assets, showing how much of the company's assets are financed by debt.

Capital Structure

Refers to how a firm finances its overall activities and growth through different sources of funds, such as debt and equity.

M&M Proposition I

A theory stating that, in a perfect market, the value of a firm is unaffected by how it is financed, regardless of the debt-to-equity ratio.

Capital Structure

Refers to the way a corporation finances its assets through a combination of equity, debt, or hybrid securities.