b) If investor’s revise their expectations and now expect that Canada’s inflation rate will increase over the next ten years, what impact will this have on the slope of the yield curve? Briefly explain.
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b) If investor’s revise their expectations and now expect that Canada’s inflation rate will increase over the next ten years, what impact will this have on the slope of the yield curve? Briefly explain.
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- What does a downward yield curve says about the condition of the economy?Briefly explain whether each of the following statements is true or false 4. The Tobin speculative demand model predicts that cash holdings decline when there is an increase in uncertainty about returns on other assets.How have people have been using the Yield Curve in predicting the future economic conditions, in particular the possibility of a coming recession.
- Briefly outline how each of the following theories explain the shape of the yield curve.A. Liquidity preference theoryB. Expectations theoryC. Preferred habitat theoryD. Market segmentation theoryWhat are the key factors that most affect the level and shape of the yield curve?View Solution:If expectations of future short-term interest rates suddenlyfell, what would happen to the slope of the yield curve?
- An inverted yield curve predicts that short-term interest rates a. are expected to rise in the future. b. will rise and then fall in the future. c. will remain unchanged in the future. d. will fall in the future. e. None of the above1. f the current interest rate on a 1-year bond is 2.80% while market participants expect a 1-year interest rate of 1.30% next year, then the expectations theory predicts that the interest rate on a 2-year bond will be ___ %: 2. If the current 1-year interest rate is 3% and the current interest rate on a 2-year bond is 4%, what is the expected 1-year rate starting a year from today? 3. You observe that currently, a 1-year bond has an interest rate of 3.00% while a 2-year bond has an interest rate of 3.00%. This means that, according to the expectations theory (no liquidity premium), market participants expect the 1-year interest rate in one year from now to be ___%:Concerning the behavior of interest rates, With the help of a graph show and briefly explain what happens to interest rates during times of an economic boom. With the help of a graph, show and briefly explain what happens to interest rates during times of higher expected inflation.
- Discuss briefly whether zero interest rate policy is advantageous or disadvantageous to economy.In January of 2019 , Sweden announced that it would increase its sale of government bonds from 55 billion krone to 85 billion krone. This resulted in (an increase, decrease, no change, an ambiguous change) in the price of government bonds and (an increase, decrease, no change, an ambiguous change) in the yield of government bonds.What is the difference between real vs. nominal interest rates? What is the ‘term structure’ of interest rates? What is the current level of interest rates, and what does the Fed say will happen to interest rates in the near future?
