MACROECONOMICS W/CONNECT
MACROECONOMICS W/CONNECT
18th Edition
ISBN: 9781307253092
Author: McConnell
Publisher: Mcgraw-Hill/Create
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Chapter 17, Problem 8DQ
To determine

Role of time preference in determining expected rate of return.

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For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain! a).  a bond of the U.S. government or a bond of an East European government b).  a bond that repays the principal in year 2015 or a bond that repays the principal in year 2040 c).  a bond from Coca-Cola or a bond from a software company you run in your garage d).  a bond issued by the federal government or a bond issued by New York State
The table below shows interest rates on 10-year bonds for a sample of American countries (Source: Bloomberg, 08/2018). What factors explain why the rate for a 10-year bond is higher in Brazil and Mexico than US and Canada? 10-Year Government Bond Yields COUNTRY United States Canada Brazil Mexico YIELD 2.88% 2.30% 11.81% 7.77% A higher default risk for Brazil and Mexico and lower expected inflation in US and Canada. A lower default risk for Brazil and Mexico and lower expected inflation in US and Canada. A higher default risk for Brazil and Mexico and higher expected inflation in US and Canada. A lower default risk for Brazil and Mexico and higher expected inflation in US and Canada.
In the summer of 2010, Congress passed a far-reaching financial reform bill to attempt to prevent another financial crisis like the one that happened in 2008-2009. We will consider two scenarios related to this bill. 18. In the first scenario, suppose that by requiring firms to comply with strict regulations, the bill increases the cost of investment. Draw a graph showing the consequences of this scenario on the market for loanable funds. What is the result? 19. Now consider the second scenario: Suppose that by requiring firms to comply with strict regulations, the bill increases confidence that savers have with the financial system, making them more likely to save their money there. Draw a graph showing the consequences of this scenario on the market for loanable funds. In this scenario, which curve shifts, and what are the results?
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