If the Economy Is in a Recession, and the Government

question 52

Multiple Choice

If the economy is in a recession, and the government increases its spending to bring the economy back to its long-run equilibrium, the long-run level of output will:

• A) return, with higher prices.
• B) return, as will the original price level.
• C) return, with lower prices.
• D) increase, with higher prices.

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Definitions:

Senior Debt

Debt that takes precedence over other unsecured or junior debt owed by the issuer in terms of the order of payment in the event of a liquidation.

Junk Bond

A high-yield but high-risk bond issued by companies or municipalities considered to be at greater risk of default than more secure investment-grade bonds.

Interest Rate

The percentage of a sum of money charged for its use, typically expressed as an annual percentage rate.

Convertible Debt

A type of bond or loan that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.