Under the expectations hypothesis of the term structure of interest rates, explain the impact of a U.S. Treasury decision to phase out the 30-year bond and to only focus on 3-month, 1-year, 5-year and 10-year bonds?
What will be an ideal response?
This decision should not have any impact in terms of the Expectations Hypothesis. A key assumption of the Expectations Hypothesis is savers look at all maturities as perfect substitutes because they have certainty regarding the future of interest rates. Thus, the phasing out of the 30- year bond would have no impact on the decisions made by savers.
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Answer the next question based on the following list of factors that are related to the aggregate demand curve. 1) Real-Balances Effect2) Household Expectations3) Interest-Rate Effect4) Personal Income Tax Rates5) Profit Expectations6) National Income Abroad7) Government Spending8) Foreign Purchases Effect9) Exchange Rates10) Degree of Excess CapacityA change in net export spending would most likely be caused by changes in ________.
A. 5 and 6 B. 2 and 3 C. 7 and 8 D. 6 and 9
After a nation starts importing a good from overseas, the domestic price of the good
A) stays the same. B) rises. C) falls. D) might change, but more information about what the country exports is needed to determine if the price rises, falls, or does not change. E) might change, but more information about what else the country imports is needed to determine if the price rises, falls, or does not change.
Careful studies of the data indicate that deviations from interest parity are
A) large. B) non-existent. C) small. D) constant over time.
The labor supply curve:
A. is made up of firms who want to hire workers at each given wage. B. is made up of workers who want to work for firms at each given wage. C. shows number of firms who are willing and able to hire workers at each given wage. D. shows that the number of firms who want to hire workers decreases as the wage increases.