Recent Question

The yield on the long bond is higher than on short-term bonds 1. "Bond prices soared and yields plunged after the Labor Department said the producer price index rose by 0.4 percent in March. Although Wall Street had been expecting a rise of only 0.3 percent, the core index, excluding the volatile food and energy sector, rose a slight 0.1 percent against expectations of a 0.3 percent rise." Bond prices soared because 74 a) inflation expe ...

Other / Other 10 May 2016

The unemployment rate increased despite so many new payroll jobs because "A February employment report that wasn't particularly weak--there were 275,000 new payroll jobs--sparked a major rally Friday because it didn't point to the blockbuster growth that many investors and traders had expected. It was a "relief rally," said one 78 analyst. The unemployment rate ticked up to 4.4 percent from 4.3 percent, but the most soothing news was a sm ...

Other / Other 10 May 2016

In this context a policy-induced recession is best described as a recession 1. "On the other hand, there was a singular economic success in the past decade: A rampant inflation was curbed, albeit at the cost of __________, and Federal Reserve actions to keep the flow of money into the economy at moderate levels have kept the lid on since." The blank is best filled with a) high taxes b) big budget deficits c) high unemployment d) low rea ...

Other / Other 10 May 2016

This is bearish for bond investors because low unemployment 1. "The eagerly awaited weekly money stock figures measure more than just the supply of money. The weekly number measures money demand as much as it does supply. The evidence now suggests the alarming growth rate of the money stock mainly reflects an upsurge in money demand, rather than an overly expansive money supply policy." Monetary policy appears to be a) restrictive b) an ...

Other / Other 10 May 2016

If we let inflation get away on us again, even for just a while, the path back to price stability "We cannot afford to take any major risks with inflation. If we let inflation get away on us again, even for just a while, the path back to price stability will be even more painful than it has been during the last few years." 1. This painful path will involve a) high taxes b) high interest rates c) high unemployment d) both b) and c) a ...

Other / Other 10 May 2016

A major advantage of monetary over fiscal policy is 1. If in a less-than-fully-employed economy the Fed wanted to reduce interest rates it could do which of the following: (i) buy government bonds on the open market or (ii) bid up the price of treasury bills at the weekly T-bill auction. a) (i) or (ii) b) (i) not (ii) c) (ii) not (i) d) neither (i) nor (ii) 2. An expansionary fiscal policy at less than full employment should a) have ...

Other / Other 10 May 2016

Which analysts said has helped keep stock prices more or less flat 1. "The ____ in market rates, Which analysts said has helped keep stock prices more or less flat since the beginning of the year, has ____ bondholders." The blanks are best filled with a) rise; helped b) rise; hurt c) fall; helped d) fall; hurt 2. "Stocks fell yesterday as the movement in rates rekindled concerns about stock market valuations. The Dow Jones industrial averag ...

Other / Other 10 May 2016

A slowing economy leads to lower interest rates because 1. "Helping to spark yesterday's bond rally was a major _____ in oil prices." The blank is best filled with a) rise, because it means interest rates will rise b) rise, because it means interest rates will fall c) fall, because it means interest rates will rise d) fall, because it means interest rates will fall 2. "So it will be impossible for monetary authorities to get lon ...

Other / Other 10 May 2016

Long-term bonds will lose favor if inflation is not whipped because 1. "Corporate treasurers should not be frightened by the recent rise in interest rates on bonds. Rates of even 13 percent will look like bargains if inflation heats up over the next 18 months." Rates of 13% will look like bargains because a) interest rates will fall if inflation increases b) bond prices are sure to rise in the near future c) interest rates are sure to ...

Other / Other 10 May 2016

The central bank must have announced that it will be targeting on 1. "But monetary policy cannot be tuned to real economic variables like growth or employment, not only because policy takes effect with long and uncertain lags, but because any commitment to real growth targets simply invites workers and business to increase wages and prices at will, in the knowledge that the central bank will ratify their demands via the money supply." Ratif ...

Other / Other 10 May 2016