In the Long-Run ISLM Model and with Everything Else Held

question 44

Multiple Choice

In the long-run ISLM model and with everything else held constant,the long-run effect of a contractionary fiscal policy is to ________ real output and ________ the interest rate.

• A)not change;not change
• B)decrease;decrease
• C)decrease;not change
• D)not change;decrease

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Definitions:

Refunding

In finance, refunding refers to the process where an entity replaces an existing debt obligation with a new debt obligation under different terms, typically to take advantage of more favorable interest rates.

High-Coupon Debt

Bonds that offer higher interest payments due to having a high coupon rate, typically reflecting higher risk or longer maturity.

Interest Payments

Regular payments made to bondholders, representing the interest earned on the bond's face value for a certain period.

Reinvestment Rate

The rate of return available to investors when they reinvest the earnings from an investment during the life of that investment.