EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
expand_more
expand_more
format_list_bulleted
Question
Chapter 35, Problem 10DQ
To determine
Required monetary policy to reduce the stock price.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Need help.
Assume that securitization combined with borrowing and irrational exuberance in Hyperville have driven up the value of asset-backed financial securities at a geometric rate, specifically from $4 to $8 to $16 to $32 to $64 to $128 over a six-year time period. Over the same period, the value of the assets underlying the securities rose at an arithmetic rate from $4 to $6 to $8 to $10 to $12 to $14.
If these patterns hold for decreases as well as for increases, by how much would the value of the financial securities decline if the value of the underlying asset suddenly and unexpectedly fell by $6?
Instructions: Give your answer as a whole number.
The diagram below shows the market for financial capital in the long run when real GDP is equal to potential output, Y*.
Real Interest Rate
5%
4%
3%
2%
1%
X
ID
20 30 40 50 60 70 80 90 100
FIGURE 25-3
Select one:
O a. demand for; -60
O b.
demand for; 60
O c.
O d.
Refer to Figure 25-3. Suppose the interest rate in this market for financial capital is 4%. In this case there is an excess
Oe.
supply of; 90
supply of; 30
e. demand for; 30
NS
Quantity of
Investment
and Saving
($ billions)
financial capital of
billion dollars.
IS-MP Analysis: Interest Rates and Output — End of Chapter Problem
The federal funds rate is 4%, and inflation is 3%. The real interest rate that people can borrow money at is 1.5%.
a. Given the data provided, move the MP curve to the
appropriate position.
Real interest rate (%)
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-5
-4
-3
-2
-1
0
1
2
3
MP curve
4
5
Chapter 35 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
Ch. 35 - Prob. 1DQCh. 35 - Prob. 2DQCh. 35 - Prob. 3DQCh. 35 - Prob. 4DQCh. 35 - Prob. 5DQCh. 35 - Prob. 6DQCh. 35 - Prob. 7DQCh. 35 - Prob. 8DQCh. 35 - Prob. 9DQCh. 35 - Prob. 10DQ
Ch. 35 - Prob. 11DQCh. 35 - Prob. 12DQCh. 35 - Prob. 1RQCh. 35 - Prob. 2RQCh. 35 - Prob. 3RQCh. 35 - Prob. 4RQCh. 35 - Prob. 5RQCh. 35 - Prob. 6RQCh. 35 - Prob. 7RQCh. 35 - Prob. 8RQCh. 35 - Prob. 9RQCh. 35 - Prob. 10RQCh. 35 - Prob. 1PCh. 35 - Prob. 2PCh. 35 - Prob. 3PCh. 35 - Prob. 4PCh. 35 - Prob. 5PCh. 35 - Prob. 6P
Knowledge Booster
Similar questions
- A Company's stock currently pays a dividend of $5 dollars per year and you expect that dividend to grow by 3% every year, forever, such that next year you expect the dividend to be 5.15, to be 5.3045 the year after that, and so on. If your discount rate is 9%, a fair price for this stock today is_____.If your discount rate were to fall to 7%, holding all else the same, the fair price of the stock would increase to_________.arrow_forwardO If the market interest rate (i) increases today, the Price of a Bond (P) today will decline. The following are correct statements about the impact of Market Interest Rate (i*) on value and return of a typical Coupon Bond, EXCEPT: The YTM of a Bond and the Market Interest Rate (i*) are the same value, even in the Short Term. O For a long term bond, if the Market Interest rate (i*) is expected to increase, the current Price of such Bond will Decline. For a two period Bond, if the Market Interest rate (i*) is expected to increase in the next period, the Expected Total Return (RET) on such bond will decline. Long Term Bonds are considered more risky than Short Term bonds, in part due to the risk associated to changes in future interest rates.arrow_forward4. Does the I in C+I+ G Nx include purchases of stocks and bonds? Why or why not? Lo2 t nnmnonent of I inarrow_forward
- The estimated current purchasing price of a discount bond with a face value of $2000 and a yield to maturity of 10% is $ your response to the nearest two decimal place) (Round What is the approximate yield to maturity on a discount bond that matures one year from today with a maturity value of $10,600, and the price today is $9283.67? OA. 83% O B. 14.2% O C. 7% O D. 8.3% OE. 9%arrow_forwardQuestion 38 Long-term bonds are generally I less risky than short-term bonds and so pay higher interest. less risky than short-term bonds and so pay lower interest. more risky than short-term bonds and so pay higher interest. more risky than short-term bonds and so pay lower interest. Question 39 On which bond is default most likely? P Type here to search 40 i3 esc (@ %23 LOarrow_forwardPlease use the graph to answer the questions. Given the market conditions, what will the prevailing interest rate be? O 6% 18% O 2% 10% Given the market conditions, how much money is borrowed in the loanable funds market? O $10 billion. $50 billion O$90 billion O $70 billion $30 billion. Interest rate (%) 18- 16- 14- 12. 10. 8- 6- + et 0 Demand Supply 60 70 80 90 10 20 30 40 50 Quantity of loanable funds (in billions of dollars)arrow_forward
- What is the present value of a payment of $5,000 at the end of one year and a second payment of $7,000 at the end of two years if the interest rate is 5 percent? O A. $11,201.84 O B. $11,111.11 O C. $10,985.14 O D. $12,250.32arrow_forwardInterest rate spread Suppose that a 5-year Treasury bond pays an annual rate of return of 2.9%, and a 5-year bond of the fictional company Risky Investment Inc. pays an annual rate of return of 7.3%. The risk premium on the Risky Investment bond is __________ percentage points. Consider an increase in the annual rate of return on the Risky Investment bond from 7.3 percent to 8.9 percent. Such a change would __________(NARROW/WIDEN) the interest rate spread on the Risky Investment bond over Treasuries to __________ . Which of the following explains the increase in the annual rate of return on the Risky Investment bond? a. The expected default rate on the Risky Investment bond has decreased. b. The expected default rate on the Treasury bond has increased. c. The expected default rate on the Treasury bond has decreased. d.The expected default rate on the Risky Investment bond has increased. NOTE- This is one question but it is divided into…arrow_forwardAssume that investment, government expenditures, taxes are autonomous. C 2000+ 0.65* (Y-T) I 900 - 50i G 400 T 1500 M 1000 P2 L 0.50Y-25iarrow_forward
- Assume that securitization combined with borrowing and irrational exuberance in Hyperville have driven up the value of asset-backed financial securities at a geometric rate, specifically from $2 to $4 to $8 to $16 to $32 to $64 over a six-year time period. Over the same period, the value of the assets underlying the securities rose at an arithmetic rate from $2 to $3 to $4 to $5 to $6 to $7. If these patterns hold for decreases as well as for increases, by how much would the value of the financial securities decline if the value of the underlying asset suddenly and unexpectedly fell by $3? Instructions: Enter your answer as a whole number.arrow_forwardBarbara Gordon withdraws $2,750 from her bank account. If the reserve requirement is 19%, by how many dollars must her bank reduce its lending? $2,227.50 $522.50 O 2,750 O $1.705arrow_forwardSuppose that, holding yield constant, investors are indifferent as to whether they hold bonds issued by the federal govemment or bonds issued by state and local governments (that is, they consider the bonds the same with respect to default risk, information costs, and liquidity) Suppose that state governments have issued perpetuities (or consoles) with $78 coupons and that the federal govemment has also issued perpetuities with $78 coupons. If the state and federal perpetuites both have after-tax yields of 8%, what are their pre-tax yields? (Assume that the relevant federal income tax rate is 31.13%) * The pre-tax yield on the state perpetuity will be______________% * The pre-tax yield on the federal perpetuity will be_______________%arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning
Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning