Suppose Your Community Is Considering Using Public Money to Build

question 17

Multiple Choice

Suppose your community is considering using public money to build a new sports stadium for the team that is already in the community but is likely to leave without a new stadium. Suppose you are watching a news broadcast in which the supporters are saying that it will enhance economic activity because of the increase in restaurant activity that will occur around the new stadium. Now suppose you hear that an independent economist is going to appear during the next segment. It is likely she will say

• A)the economic activity created in the area will make it worth the investment.
• B)there will be no new economic activity created.
• C)there will be no new economic activity created in net because the same amount of money will be spent in the city whether or not there is a team. It will simply substitute from the game to something else.
• D)it may be a short-term cost, but in the long term it will be worthwhile.

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Definitions:

Future Inflation

The projected increase in the price level of goods and services over time, affecting the purchasing power of money.

Term Structure

Describes the relationship between interest rates or yields and the maturity of debt securities, typically depicted in a yield curve showing rates for various terms.

Bond Ratings

A grade given to bonds that indicates their credit quality, with higher ratings suggesting a lower risk of default.

DBRS

A credit rating agency that evaluates the creditworthiness of entities and their issued debt.