In mid-2004 there was speculation that the Federal Reserve would be raising interest rates before the end of the year. How would this news affect the bond market and why?
What will be an ideal response?
The speculated increase in interest rates by the Federal Reserve would cause the value of bonds to decrease. As we saw in the text, an increase in the expected future interest rate makes bonds less attractive. This will lower the demand for bonds, causing bond prices to decrease and yields to increase. Moreover, the change in bond prices and yields will occur before the actual interest rate changes since existing and prospective bondholders will act on their expectations.
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If the market demand for oranges is relatively inelastic with respect to price, orange consumers
A) pay no attention to price in their purchasing decisions. B) will buy fewer oranges at any higher price and will spend less money on oranges. C) will buy fewer oranges at any higher price but will spend more money on oranges. D) will buy more oranges at any higher price. E) will buy more oranges only if their incomes increase.
High real interest rates
A. increase the demand for the domestic currency by foreigners. B. cause decreased job opportunity. C. cause worker productivity to decrease. D. crowd out interest-sensitive expenditures.
Who among the following is NOT frictionally unemployed?
A) Andrew, a teenager who has just entered the labor market looking for his first part-time job B) Barbara, who is re-entering the labor market after a divorce C) Charles, who was laid off from his factory job but expects to be recalled in a few weeks D) Diana, who has quit her job and is now looking for another
The slope of a line with rise of five and run of two is positive
a. True b. False Indicate whether the statement is true or false