Question Details

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) anti-inflationary 
c) targeting on the interest rate d) targeting on the money growth rate 
2. "On Friday the market withstood what bond investors ought to have viewed as a rather bearish jobless report. The number of employed U.S. workers rose by 125,000 in April, higher than the 75,000 expected. The unemployment rate dropped to 7.2 percent from 7.3 percent the previous month." This is bearish for bond investors because low unemployment 
a) may cause the Fed to increase interest rates 
b) may cause the government to increase taxes 
c) is usually accompanied by low interest rates 
d) may cause the Fed to increase the money supply 
3. "For example, a 20-year government bond paying 10.25 percent was selling for $1,007.10, priced above its par value of $1,000 to yield 10.15 percent." The quoted yield of 10.15 percent is slightly lower than $102.50 expressed as a percentage of 1007.10 because 
a) there is a rounding error in yield calculations 
b) the capital loss of $7.10 must be accounted for 
c) the coupon is actually a bit lower than $102.50 
d) the coupon is actually a bit higher than $102.50 
4. "In the financial markets, red ink is flowing as some investment dealers continue to lose money on the treasury bills they buy from the federal government. The biggest buyers of the bills, the banks, have been reducing their holdings steadily since last September in order to meet rising loan demand." From this information, interest rates should be 
a) rising b) falling c) steady d) can't tell 
5. "It is now evident that loan demand has dropped sufficiently since the beginning of the year to allow the money supply to grow at a rate of less than 10 percent at current levels of interest rates." This is because 
a) inflation has increased b) monetary policy is targeting on an interest rate 62 

c) monetary policy is targeting on a money growth rate 
d) traditionally money demand determines money supply



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