In a Country Where Output Equals Consumption and I and G

question 29

Multiple Choice

In a country where output equals consumption and I and G are zero, a new investment holds the prospect of permanently increasing output and, thus, consumption. Based on this information, which of the following statements is correct?

• A) If it is a closed economy, then there is a better prospect for investment and consumption smoothing than in an open economy.
• B) If it is an open economy, then it is better for the economy to borrow externally to pay for the investment.
• C) If it is a closed economy, then the increase in investment can be achieved without sacrificing consumption.
• D) If it is an open economy, then it will result in more fluctuations in output and consumption.

Understand the impact of issuing bonds at a discount or premium on the cost of borrowing.

Identify the components and implications of bond redemption transactions.

Recognize the difference between stated/contractual and market/effective interest rates.

Explain the effect of market interest rate changes on bond prices.

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Definitions:

Online Surveys

Surveys distributed and completed over the internet, allowing for a wider reach and often, quicker responses.

Internal Validity

The extent to which a study establishes a trustworthy cause-and-effect relationship between a treatment and an outcome.

External Validity

The extent to which the results of a study can be generalized or applied beyond the specific conditions of the study.

Experimental Settings

Environments or arrangements in which experimental research is conducted, designed to isolate and control variables affecting the outcome of the study.