Apart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) policy, federalbudget deficit or surplus, international factors, and levels of business activity-influence interest rates.Based on your understanding of the impact of macroeconomic factors, identify which of the following statements aretrue or false:FalseStatementsTrueActions that lower short-term interest rates will always lower long-term interest rates.During the credit crisis of 2008, investors around the world were fearful about the collapse ofreal estate markets, shaky stock markets, and lliquidity of several securities in the UnitedStates and several other nations. The demand for U.S. Treasury bonds increased, which ledto a rise in their price and a decline in their yields.When the Fed increases the money supply, short-term interest rates tend to decline.The Federal Reserve Board has a significant influence over the level of economic activity,inflation, interest rates in the United States.

The long term interest rate is also determined by average expected inflation rate. So that short…

Answered: Apart from risk components, several…

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter16: Monetary Policy

Section: Chapter Questions

Problem 1SQP

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Apart from risk components, several macroeconomic factors—such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity-influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements Countries with strong balance sheets and declining budget deficits tend to have lower interest rates. When the economy is weakening, the Fed is likely to increase short-term interest rates. During the credit crisis of 2008, investors around the world were fearful about the collapse of real estate markets, shaky stock markets, and illiquidity of several securities in the United States and several other nations. The demand for US Treasury bonds increased, which led to a rise in their price and a decline in their yields. The Federal Reserve Board has a significant influence over the level of economic activity, inflation, interest rates in…
After the global financial crisis, there has been a heated debate about whether the sluggish recovery in advanced economies reflects the secular stagnation or a slowing trend under debt overhang. Advocates of secular stagnation argue that tepid investment spending along with subdued consumption by households would result in persistent output gap and slow growth for many years to come. Also, the resulting excess of global savings over global investment in turn would put the real interest rate on a downward path. There are several explanations for this secular stagnation hypothesis. Which of the following cannot be viewed as such explanation?a. Decline in investment rates due to a dearth of profitable investment opportunitiesb. Decline in the relative price of investment goods – hence the same investment projects can be pursued by committing a smaller share of GDP, which results in a lower amount of investment in total.c. Decline in population growth rate means capital has less…
HOW DO T-BILL YIELDS GO NEGATIVE? BY THE APLIA ECONOMICS CONTENT TEAM The week of September 15, 2008, was ripe with volatility in U.S. financial markets. Events unfolding in the wake of the mortgage crisis made investors extremely fearful. One result of this fear was a “flight to quality” as investors sought to avoid risk by moving their funds into the safest asset classes. U.S. Treasury securities (or “Treasuries,” as they’re commonly known) are one such asset class, considered to have virtually no risk. An article from the Associated Press (Madlen Read, “Treasures Dip on RTC Speculation, but Anxiety High,” September 18, 2008) discusses some of the factors that led investors to bid up the prices of 3-month United States Treasury bills (T-bills) to such an extent that their yields fell to a shockingly low level. Before 2008, the last time the T-bill yield was negative was 1940, in the early stages of World War II. According to the article: Heavy buying of the 3-month Treasury bill,…
The financial system in Jamaica has been the subject of much attention since the news broke of the alleged fraud at Stocks and Securities Limited (SSL). The governor of the Bank of Jamaica (BOJ) has been fielding calls from concerned investors, international financial institutions, and even other regional regulators concerning the impact of this situation and the negative media reporting would have on the stability of the financial system in Jamaica and the Caribbean region.The governor would like to preserve confidence in the financial markets and institutions and has decided to embark on a series of educational “road-shows” where he will address targeted stakeholders such as the American Chamber of Commerce (AMCHAM), investor groups and the media.In this regard, the governor has assigned your team of senior professionals employed at the Bank of Jamaica to prepare a presentation slide deck for his address. Give an overview of the structure of the Jamaica financial systemThe role of…
Read the following premise carefully and answer the questions specifically and in detail: "Financial institutions such as banks, mortgage companies and finance companies serve as intermediaries between those who have a surplus versus those who have a deficit creating a capital injection market." Using the concepts of real interest rate and expected rate of return, he contrasts the relationship between savings and capital investment. Using the macroeconomic theory presented in the module content, he explains the relationship of the financial market with the economic growth of a country. Explain the dynamics that are expected to occur between different development policies in the injection of capital as instruments to promote growth, sustainability and economic stability of a country.
The policies of the federal government influence the outcomes of the various activities in that economy. When government policies change or unplanned events occur, the resulting economic events or activity will usually change. Listed below is a policy or event that affect the performance of the economy: Interest rates are kept artificially low by the Federal Reserve for several years. For the question above, describe what would be the likely outcome in the economy. Use the appropriate tools of analysis, such as aggregate demand and aggregate supply where appropriate, to justify and explain your answer.
Variation in the price of non-agricultural commodities is determined over time by demand-supplydynamics. The last two decades have seen a significant increase in international trade and businessvolume due to globalization and liberalization sweeping across the world. This increase has led torapid and unpredictable variations in financial assets prices, interest rates, and exchange rates, andsubsequently, to exposing Multi-National Corporations to financial risk. As a result, financialmarkets have experienced rapid variations in interest and exchange rates and stock market prices,thus exposing the corporate world to a state of growing financial risk. We can hedge the risk ofprice variations in stocks, bonds, commodities, currencies, interest rates, market indices, etc. a) How is Jamaica's economic well-being enhanced through free international trade in goods and services, especially since the COVID-10 pandemic? Discuss two relevant examples specific to Jamaica. b) Discuss two (2)…
Which of the following is a true statement? Multiple Choice ___ If interest rates fall, U.S. Treasury bonds will have decreasing values. ___ If interest rates fall, corporate bonds will have decreasing values. ___ If interest rates fall, no bonds will enjoy rising values. ___ If interest rates fall, all bonds will enjoy rising values
You are considering purchasing a 10-year bond and follow the theory of rational expectations. If you have justread the annual report of the central bank in your country that states interest rates are higher than expected,will you buy the bond today or in the next month?
If the U.S. economy enters a new financial crisis, the government may use monetary policy tools to avert a financial meltdown. The government may utilize monetary policy tools to avert a financial collapse if the U.S. economy experiences another financial crisis. First, the Federal Reserve should operate as a lender of last resort and make loans to banks and financial institutions to meet their short-term obligations. When the risk of a financial collapse has receded, the government should revert to its traditional expansionary monetary policy. Open market activities of buying and selling assets on the open market is one action the government may use. Through open market operations, the government may increase the economy's liquidity by purchasing assets from banks and the general public. Reducing the discount rate, i.e. the interest rate at which the central bank provides short-term loans to banks, will result in a decrease in the rate at which commercial banks offer loans to the…
Which of the following is most likely to occur in an economy where the central bank significantly lowers interest rates? A) An increase in consumer savings B) A decrease in investment by businesses C) An increase in consumer and business borrowing D) A decrease in overall economic activity
Q4. The historical relation between US GDP growth rate (8GDP) and the Fed fund rate (Fedr) fits a finite distributed lag model. Annual data are collected and the estimated model is: 9GDP, = 5.8 – 0.5 Fedr, - 0.3 Fedr-1-0.1 Fedr-2 where gGDP and Fedr are measured in percentage, i.e. if the Fed fund rate is 2 percent, then Fedr is 2, not 0.02. The Fed fund rate had stayed at an ultra-low level of 2% for the last 5 to 6 years up until yesterday. Today the Fed raises the Fed fund rate to 3% for one year only in order to head off some temporary overheating. The rate will return to 2% one year from now. What would the US GDP growth rate be two years from today? A. 4.1% В. 3.9% С. 3.4% D. 1.9% Е. 1.4%

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