Principles of Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134421193
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 10.A, Problem 1P
To determine
To explain the differences’ interest rates.
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The main impact of quantitative easing on the economy is that it
1, pushes long-term interest rates down and encourages investors to purchase more risky assets like shares, which can encourage more business investment and consumer spending.
2, pushes long term interest rates up and encourages investors to purchase more risky assets like shares, which can encourage more business investment and consumer spending
3, pushes long term interest rates up and encourage investors to purchase more risky assets like shares, which can encourage more business investment and consumer spending
4, encourages banks to increase their lending, as explained by the money multiplier
5, involves the provision of free money to private banks.
Using your knowledge of the term structure of interest rates, demonstrate that the assertion “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 ” holds.
Consider a bond without an expiration date that makes a fixed interest payment of $210 per year.
Complete the following table by calculating the interest rate on the bond at different sale prices. (Hint: The effective interest rate on a bond is a ratio of the interest payment to the sale price of the bond times 100.)
Price of Bond
Interest Rate
(Dollars)
(Percent)
1,200
1,000
750
600
Use the blue points (circle symbol) and the preceding table to plot the relationship between bond prices and interest rates on the following graph.
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
The line showing the relationship between bond prices and interest rates has a _____(POSITIVE/NEGATIVE) slope; in other words, there is _______(INVERSE / A DIRECT) relationship between bond prices and interest rates.
NOTE- THIS QUESTION IS DIVIDED INTO SUBPARTS . PLEASE ANSWER…
Chapter 10 Solutions
Principles of Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
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