Other Things Equal, an Expansionary Monetary Policy Will

question 210

Multiple Choice

Other things equal, an expansionary monetary policy will:

• A)reduce net exports.
• B)increase interest rates.
• C)reduce GDP.
• D)reduce the international value of the dollar.

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Definitions:

Interest Tax Shield

The reduction in income taxes that results from deducting interest payments on debt from taxable income.

Unlevered Cost of Capital

The cost of capital for a company that has no debt, representing only the cost of equity.

Financial Leverage

The use of borrowed money (debt) to finance the acquisition of assets, with the expectation that the income or capital gain from the new assets will exceed the cost of borrowing.

Par Bonds

Bonds that are issued and redeemed at their face value, or par value, which represents the nominal or dollar value printed on the bond.