If the Private Sector Wishes to Hold a Constant Quantity

question 112

Multiple Choice

If the private sector wishes to hold a constant quantity of real government bonds,inflation requires that the private sector continuously ________ those bonds,so that the government ends up having to pay out interest on net equal to the ________ interest rate times the bonds outstanding.

• A)sell,nominal
• B)sell,real
• C)buy,nominal
• D)buy,real

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Definitions:

Bond Discount

The gap between what a bond is worth (its face value) and the lower amount it is sold for in the market.

Amortization Methods

Various techniques used to gradually write off the initial cost of an intangible asset over a period.

Amortization

The process of spreading out a loan or intangible asset cost over a specified period of time.

Installment Notes

Long-term debts that are paid back in regular, periodic payments over time, which include both the principal and interest.