Tangshan Mining Borrowed $10,000 for One Year Under a Line

question 48

True/False

Tangshan Mining borrowed $10,000 for one year under a line of credit with a stated interest rate of 8 percent and a 10 percent compensating balance. Normally, the firm keeps a balance of about $800 in its checking account. Based on this information, the effective annual interest rate on the loan was 8.89 percent.

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Definitions:

Crowding-Out Effect

A situation where increased government spending leads to reduced investment by the private sector due to higher interest rates or other mechanisms.

Multiplier

The multiplier, in macroeconomics, quantifies how initial changes in spending lead to larger changes in income and output through various rounds of spending.

Discretionary Fiscal Policy

Government policies involving changes in taxation and spending levels, aimed at influencing economic conditions, including managing inflation, unemployment, and fostering economic growth.

Balance Budget

A financial statement in which revenues and expenditures are equal, resulting in no deficit or surplus.