Question Details

Why can't it achieve immediately a low interest rate if it wanted to 


1. "The Fed chairman added that the principal misunderstanding about the Fed's role in the present situation is that the Fed could achieve more or less immediately a low level of interest rates if it wanted to." Why can't it achieve immediately a low interest rate if it wanted to? 
a) because velocity is unstable b) it could - this is just Fed rhetoric 
c) because it requires lowering inflation which takes time 
d) because Fed control over the money supply is incomplete 
2. "Investing in debt securities is a gamble on the government's prudence. The budget makes it clear that the government has taken this task to heart. It stresses the fact that the deficit will be covered by sales of bonds to the general public and not to the central bank." This gamble is more likely to be successful if the bonds are sold to the general public rather than to the central bank because 
a) capital losses are less likely b) inflation is likely to be higher 
c) bond prices are likely to be lower d) the interest rate is likely to be higher 
3. "It had been feared that more good economic readings would trigger a sell-off in the bond market, which typically responds negatively to such news because......" Complete this clipping. 
a) inflation expectations may rise, raising the interest rate 71 
b) the Fed may react by raising the interest rate 
c) usually such news foretells a fall in interest rates d) both a) and b) above 
4. "A smaller-than-expected decrease in the U.S. money supply dealt the North American capital market a hard blow, as bond prices sagged across a broad front." Bond prices sagged because 
a) inflation fears caused a rise in the interest rate 
b) inflation fears caused a fall in the interest rate 
c) the fall in the money supply increased interest rates 
d) the fall in the money supply decreased interest rates 
5. "Swings in the price of bonds reflected a high degree of uncertainty about inflation and changing perceptions in the market. The release of figures that showed the economy to be stronger than expected tended to push prices ________ and yields _________ ." The blanks are best filled with 
a) higher; higher b) higher; lower c) lower; higher d) lower; lower




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