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SECTION 1: MULTIPLE CHOICE QUESTIONS1. A U-shaped yield curve indicates that short-term interest rates are expected to(a) rise in the near-term and fall later on.(b) fall sharply in the near-term and rise later on.(c) fall slightly in the near-term and rise later on.(d) remain unchanged in the near-term and rise later on.2. Which of the following best de?nes the real interest rate (r)?(a) the amount of goods we must give up next year to consume more goods today(b) the amount of dollars we must give up next year to consume more goods today(c) the amount of dollars we must give up next year to have more dollars today(d) the amount of dollars we must give up today to have more dollars next year(e) the amount of dollars we must give up today to consume more goods today3. The fundamental value of a share of stock is equal to which of the following?(a) the sum of expected dividends(b) the present value of expected dividends(c) the sum of coupon payments(d) the present value of coupon payments(e) the present value of the expected yield4. De?ne i as the nominal interest rate and r as the real rate. Lower money growth causes(a) an increase in i in the medium run and no change in r in the medium run.(b) no change in i in the medium run and no change in r in the medium run.(c) no change in i in the medium run and a reduction in r in the medium run.(d) a reduction in i in the medium run and no change in r in the medium run.5. If the expected in?ation rate is negative, the real interest rate must be(a) negative.(b) less than the nominal interest rate.(c) equal to the nominal interest rate.(d) greater than the nominal interest rate. 16. Suppose there is a decrease in the short-term interest rate. Given this reduction in the currentshort-term interest rate, which of the following will most likely occur?(a) the long-term interest rate will increase(b) the long-term interest rate will remain the same(c) the long-term interest rate will decrease by more than the short-term rate(d) the long-term interest rate will decrease by the same amount as the short-term rate(e) the long-term interest rate will decrease, but by less than the short-term rate7. Assume the yield curve is initially upward sloping. If ?nancial market participants expectthe central bank will cut the money supply in the future, then which of the following willoccur?(a) the yield curve will become steeper(b) the yield curve will become ?atter(c) the yield curve will become horizontal(d) the yield curve will become downward sloping(e) the yield curve will be unchanged8. The Fisher effect summarizes the effects of:(a) in?ation on the nominal interest rate in the short run(b) in?ation on the real interest rate in the short run(c) in?ation on the nominal interest rate in the medium run(d) in?ation on the natural real interest rate in the short run(e) in?ation on the real interest rate in the medium run 210. If the nominal interest rate is 15% per year, how much money can an individual borrow todayif she repays $100 in two years?(a) $70.00(b) $75.61(c) $86.96(d) $115.00(e) $132.503 SECTION 2: SHORT ANSWER QUESTIONS1. On August 9, 2011, The Fed committee that sets the short-term nominal interest rate said:To promote the ongoing recovery and to help ensure that in?ation, over time,is at levels consistent with its mandate, the Committee decided today to keep thetarget range for the federal funds rate at 0 to 1/4 percent. The Committee currentlyanticipates that economic conditionsincluding low rates of resource utilizationand a subdued outlook for in?ation over the medium runare likely to warrantexceptionally low levels for the federal funds rate at least through mid-2013.If the policy is successful, what is the shape of the yield curve that results form this statement? Provide a detailed explanation. Why would the Fed implement this policy? Explain.2. How can the Fed reduce in?ation? How would this policy affect the nominal interest rate,the real interest rate, output, unemployment, and in?ation in the short-run and medium-run?Describe, in detail, the dynamics of the suggested policy.
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The post SECTION 1: MULTIPLE CHOICE QUESTIONS1. A U-shaped yield curve appeared first on Cheapest Academic Custom Papers.
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