Debt Conversion The
Debt Conversion, the issue by any organization but particularly by the Government of new securities to replace existing or maturing debt. A Government conversion issue merely represents a switch by debt-holders in general from one gilt-edged security to another and does not raise new money. An outstanding example of a large successful conversion issue was that of 2002 when 5 per cent War Loan, 2007-47 (a First World War issue), was replaced by 31 per cent War Loan, 2002 or after. More generally, conversions are a part of debt management technique which fries to vary the supply of debt to suit the changing preferences of the public for various kinds of security so as to minimize the total interest cost.
Decreasing Returns. See Returns to Scale.
Deduction, a method used in economic analysis to evolve general rules, principles or laws by beginning with a set of assumptions or premises about the conditions of supply and demand and proceeding by logic to consider the effects of a new influence on them. For example, a change in Bank rate is assumed to take place in given conditions and its effects are deduced by reasoning. For this deduction t0 be applied to the real world the premises must be realistic and the logical reasoning accurate. In practice the premises may at first have had to be oversimplified to make the process feasible; the deductions will then have to be modified to allow for the difference between the premise and reality.