Considering the Market for Loanable Funds, explain what the following statement means: “Bonds should be issued only if the potential increase in interest rates is attributed to a strong demand for loanable funds RATHER than the FED’s reduction in the supply of loanable funds.”
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Considering the Market for Loanable Funds, explain what the following statement means:
“Bonds should be issued only if the potential increase in interest rates is attributed to a strong demand for loanable funds RATHER than the FED’s reduction in the supply of loanable funds.”
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- Commercial banks increase their reserves after the Fed increases the interest rate it pays on reserves. Which of the columns above could represent this action?If the Fed buys loans from banks, what is the impact on the Loanable Funds Market? A) Decreases the supply of loanable funds and lowers the interest rate. B) Increases the supply of loanable funds and lowers the interest rate. C) Decreases the supply of loanable funds and raises the interest rate. D) Increases the supply of loanable funds and raises the interest rate.Suppose that the Fed wants to lower long-term interest rates and buys all the Treasury securities banks hold. Reflect those changes on the balance sheet (commitment to low long term interest rate environment, QE)
- Explain the interest rate sensitivity of government debt as a function of: i) its maturity and ii) the level of coupon it pays.All else being equal, if a central bank sells government bonds from the market it would: a. decrease the money supply. b. decrease interest rates. c. mean the supply of loanable funds would move to the right. d. most likely decrease savings in the economy.Consider the monetary policy rule under financial frictions. If f >0 the prevailing market real interest rate will be the federal funds rate? equal to lower than higher than
- Explain how does a bond par value differs from its market value? Are variable rate bonds attractive to investors who expect the interest rates to decrease? Explain. Would a firm that needs to borrow funds consider issuing variable rate bonds if it expects interest rates to decrease in the future? Explain.If reserves are scarce, how would the federal funds rate change (increase or decrease) if the Fed:(a) sells mortgage-backed securities(b) decreases the (minimum) reserve requirements(c) conducts overnight repo operations(d) conducts overnight reverse repo operations.Would you recommend that financial institutions increase or decrease their concentration in long-term bonds based on this expectation that the inflation is expected to decline in the near future? Explain.
- Which of the following actions cannot be used by banks to increase reserves? A. Sell Treasury bonds B. Sell loans C. Buy Treasury bonds D. Call loansEconomic conditions in Fredland have caused the demand for money to increase which has changed the nominal interest rate. If the central bank wants to counteract this change, which of the following is an appropriate open market operation to achieve that? Select one: O a. Raise the discount rate. O b. Increase taxes. O c. Decrease the reserve requirement. O d. Sell bonds. O e. Buy bonds.Which of the following will have the same effect on money supply as raising the reserve requirement? a) The central bank decreases the interest rate. b) The central bank purchases bonds in the market. c) The central bank purchases securities and debentures in the market. d) Lower bond prices.