When nominal interest rates have hit the zero lower bound, can central banks affect the interest rates?Select one:OA. Yes: since the zero lower bound applies to nominal rates, not real rates, and it is real rates that are relevant forinvestment decisions.OB.No: once the zero lower bound is hit, central banks can no longer employ interest rates to stimulate economicactivity.OC. Yes, but the mechanism by which central banks manipulate the interest rates that matter for spending mustdeviate from the banks' traditional method.OD. A and C.

At the zero lower bound, central banks can still influence real interest rates. Real interest rates…

Answered: When nominal interest rates have hit…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Banks are more likely to create M-1 when the economy is expanding than when it is experiencing a recession. Do you agree or disagree? Why?
Do you think some investors may take advantage of the interest rate reduction, despite economic uncertainties?
From the point of view of the borrowing business, loan capital tends to be cheap but risky. In what sense is it risky?
How does climate change threaten financial stability?
If we hold all other factors the same, an increase in interest rates will: a. Decrease the present value of a stream of constant payments we expect to receive. b. Increase the present value of a stream of constant payments we expect to receive. c. Decrease the interest revenue that a company will earn on its funds that it holds in its interest-bearing checking account. d. No impact on how much a company should be willing to pay for factory equipment that is expected to significantly reduce the factory electricity costs.
Why do some financial institutions offer more frequent compounding in the financial market?
In a CDO structure, when economic condition turns out to be better than previously expected, the cash flow from the pool of underlying assets (such as mortgage loans or consumer loans) is more than the level reflected in the original(previous) pricing of the tranches. In this scenario, which tranche’ rate of return will turn out to be higher than others? → (1) Senior tranche; (2) Mezzanine tranche; (3) Junior tranche;
Debt allows an economy to appear very large but debt also creates more ____ in an economy. Inevitability Surety Certainty Risk Business
(a) Suppose that the economy of Microland is expanding rabidly. Due to this rapid expansion, the Federal Reserve Bank is pursuing a contractionary monetary policy. Draw clearly labeled graphs for each market (Money market, Goods Market and Investment) to show the effects of this policy on the equilibrium interest rate, investment and output. (b) Suppose that the economy of Macroland is expanding rabidly. Due to this rapid expansion, the Federal Government is pursuing a contractionary fiscal policy. Draw clearly labeled graphs for each market (Money market, Goods Market and Investment) to show the effects of this policy on the equilibrium interest rate, investment and output. Is there any crowding-out due to the contractionary fiscal policy?
The rationale for funds transfer pricing is that there are: Group of answer choices D. Less chances for controversy in organizations B. Controls that can be exercised over the dynamics of yield curves C. Controllable interest rate risks removed from business results A. Economies of scale in managing interest rate risk
3
The market for capital Firms require capital to invest in productive opportunities. The best firms with the most profitable opportunities can attract capital away from inefficient firms with less profitable opportunities. Investors supply firms with capital at a cost called the interest rate. The interest rate that investors require is determined by several factors, including the availability of production opportunities, the time preference for current consumption, risk, and inflation. Suppose the Federal Reserve (the Fed) decides to tighten credit by contracting the money supply. Use the following graph by moving the black X to show what happens to the equilibrium level of borrowing and the new equilibrium interest rate. Q1. Which tend to be more volatile, short- or long-term interest rates? Long-term interest rates 2. Short-term interest rates Q2. If the inflation rate was 3.20% and the nominal interest rate was 4.20% over the last year, what was the real rate of interest over…

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