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Unformatted text preview: Well, the government does what most folks do when they are a little short, they borrow the money. They borrow money by auctioning U.S Treasury Securities in the form of treasury bonds, notes and bills at a discount from face value. A Treasury bill is a certificate representing a short-term loan to the federal government that matures in three, six or 12 months. A Treasury note matures in two to 10 years. A Treasury bond matures in more than 10 years. A 12 month Treasury bill may have a face value of $10,000, but is auctioned to the highest bidder at discount. For example, the winning bid may be $9,500. The bidder pays $9,500 for the security, and at the end of 12 months the government pays the holder of the bill $10 000 The $500 3 end of 12 months the government pays the holder of the bill $10,000. The $500 difference is the interest paid to the purchaser....
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This note was uploaded on 12/29/2011 for the course ECO 210 taught by Professor Malls during the Fall '10 term at SUNY Stony Brook.
- Fall '10