Match each of the following theories with its description. (Enter a value: 1-4.) Expectations theory Theory Preferred habitat Segmented markets ㅁㅁㅁ Description 1. The interest rate for each bond with a different maturity is determined by the supply of and demand for that bond, with no effects from expected returns on other bonds with other maturities. 2. The interest rate on a long-term bond will equal an average of the short-term interest rates that people expect to occur over the life of the long-term bond. 3. When short-term interest rates are low, yield curves are more likely to have an upward slope; when short-term interest rates are high, yield curves are more likely to slope downward and be inverted. 4. The interest rate on a long-term bond will equal an average of short-term interest rates expected to occur over the life of the long-term bond plus a liquidity premium (also referred to as a term premium) that responds to supply and demand conditions for that bond.
Match each of the following theories with its description. (Enter a value: 1-4.) Expectations theory Theory Preferred habitat Segmented markets ㅁㅁㅁ Description 1. The interest rate for each bond with a different maturity is determined by the supply of and demand for that bond, with no effects from expected returns on other bonds with other maturities. 2. The interest rate on a long-term bond will equal an average of the short-term interest rates that people expect to occur over the life of the long-term bond. 3. When short-term interest rates are low, yield curves are more likely to have an upward slope; when short-term interest rates are high, yield curves are more likely to slope downward and be inverted. 4. The interest rate on a long-term bond will equal an average of short-term interest rates expected to occur over the life of the long-term bond plus a liquidity premium (also referred to as a term premium) that responds to supply and demand conditions for that bond.
Chapter20: Monetary Policy
Section: Chapter Questions
Problem 3SQP
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Transcribed Image Text:Match each of the following theories with its description. (Enter a value: 1-4.)
Expectations theory
Theory
Preferred habitat
Segmented markets
ㅁㅁㅁ
Description
1. The interest rate for each bond with a different maturity is determined by the supply of and demand for that bond, with no
effects from expected returns on other bonds with other maturities.
2. The interest rate on a long-term bond will equal an average of the short-term interest rates that people expect to occur over
the life of the long-term bond.
3. When short-term interest rates are low, yield curves are more likely to have an upward slope; when short-term interest rates
are high, yield curves are more likely to slope downward and be inverted.
4. The interest rate on a long-term bond will equal an average of short-term interest rates expected to occur over the life of
the long-term bond plus a liquidity premium (also referred to as a term premium) that responds to supply and demand
conditions for that bond.
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