Recent Question

The Fed was right to push up interest rates because it needs to 1. "The U.S. price control program, which was adopted in the second half of 1971, partly suspended the market system, producing distortion and shortages while 89 suppressing inflation instead of resolving it." The inflation was suppressed rather than resolved because a) the permitted price increases were not set low enough b) the money supply growth rate was not lowered ...

Other / Other 10 May 2016

What mix of monetary and fiscal policy is required to increase income 1. Suppose the interest rate is 7 percent, and a bond with an annual coupon of $75 matures in one year's time, paying its face value of $1000. This bond's current price is a) less than $930 b) $930 or more, but less than $970 c) $970 or more, but less than $1000 d) $1000 or more 2. Consider a bond with a face value of $1000, due to mature in one year's time. Its cur ...

Other / Other 10 May 2016

The implication for monetary policy of going above this comfort zone is that 1. “To stimulate the economy the government could give money away. The danger here is that it could trigger a bond market crash.” This would happen because a) the extra wealth would bid up bond prices b) the extra money would cause inflation c) the extra wealth would increase unemployment d) the extra money would lower interest rates 2. â ...

Other / Other 10 May 2016

What price should one expect to pay 1. Suppose the current interest rate is 5%. What price should one expect to pay for a $1000 treasury bill, due to mature in one year, Which had originally been sold when the interest rate was 10%? a) less than $950 b) $950 c) between $950 and $1000 d) more than $1000 2. Consider a bond with a coupon of $90, and a face value of $1,000, due to mature in one year's time. The current interest rate is 10 ...

Other / Other 10 May 2016

Why might monetary policy not be able to alleviate the 2008 recession 1. “While U.S. Treasuries are at record low yields, corporate bonds are at record highs. Corporations are paying an average interest rate of 10.8 per cent on debt, compared with 2.6 per cent on 10-year U.S. Treasuries.” This dramatic difference could be caused by a) a high inflation rate b) a high tax rate c) fears of corporate bankruptcy d) a low leve ...

Other / Other 10 May 2016

The price of this bond last week was 1. "This inflation-indexed bond is structured so that the coupon payments are 4.25 percent, and the principal is adjusted as inflation changes over the life of the bond. The issue met stiff opposition." From this information, the current real interest rate is a) equal to 4.25% b) less than 4.25% c) greater than 4.25% d) greater than current inflation 2. "Bond traders, worried about inflation, hav ...

Other / Other 10 May 2016

The least reasonable way to complete this clipping is 1. "The desire to see interest rates lower, or to avoid increases, is natural. But attempts to accomplish that desirable end by excessive monetary growth would soon be counterproductive. The implications for interest rates would in the end be perverse." Interest rate movements would in the end be perverse because a) lower bond prices could not be sustained by this policy b) unemplo ...

Other / Other 10 May 2016

The rationale behind these comments is based on 1. "He favors a slow recovery, for example, because the natural rate of unemployment may turn out to be higher than anyone thinks." Possible underestimation of the natural rate implies that a recovery should be slow because a) a slow recovery is politically more desirable b) a fast recovery runs the risk of creating inflation c) a slow recovery ensures the employment gains are permanen ...

Other / Other 10 May 2016

A sale of bonds by the central bank should cause 1. As interest rates rise the demand for money a) rises because bond prices fall b) falls because people want more liquid assets c) rises because the rate of return to loaning money is greater d) falls because the opportunity cost of holding money is higher 2. Which of the following causes M1 demand to decrease? a) a fall in the tax rate b) an increase in income c) a fall in the ...

Other / Other 10 May 2016

Monetary policy is discriminatory because it has a relatively large impact on 1. "Bonds rallied sharply yesterday, cheered on by the news that the recession isn't over yet. Prices climbed by as much as $8.75 for each $1,000 face amount in the U.S. government securities market after the Commerce Department reported that GDP fell by 0.1 percent in the second quarter." Bad news rallies bonds because it a) may cause the government to lowe ...

Other / Other 10 May 2016