In 2007, as stock prices in general were falling, many investors began switching their funds into purchasing bonds. Surveys suggest that many of these investors did not understand the basic relationship between bond prices and interest rates. Using a numerical example, illustrate how an increase in the demand for bonds would affect the interest rate paid on bonds.
What will be an ideal response?
If there is an increase in the demand for bonds, this would increase the price paid for a particular bond, increasing the price from, for example, $500 to $600. If the bond paid guaranteed an interest payment of $20 per year, the effective rate of interest would fall from 4 percent ($20/$500 × 100) to 3.3 percent ($20/$600 × 100). Thus, the increase in the price of the bond would decrease the interest rate. The general rule is that bond prices and interest rates are indirectly related. As bond prices change, interest rates change in the opposite direction.
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Immigration accounts for what percentage of annual population growth in the United States in recent years?
A. About 10 percent B. About 20 percent C. About 33 percent D. About 50 percent
Explain and give some examples of governmental policy problems
What will be an ideal response?
Potential GDP measures the capacity of the economy in terms of the actual goods and services to be produced
Indicate whether the statement is true or false
The average difference over a long period of the interest rate on long-term bonds and the interest rate on the short-term federal funds rate is called
A) risk premium. B) term premium. C) FED's premium. D) monetary premium.