Many people are worried that, with the growing number of people that will retire in the US over the next 40 years, the federal government will need to borrow large amounts of money to finance the Social Security System. If we assume that Social Security taxes and the current eligibility age remain constant, explain the likely impact this will have on bond markets.
What will be an ideal response?
If the Social Security Administration (SSA) finds that it will need to borrow to finance its obligations this will cause the bond supply to increase, a shift to the right of the bond supply curve. All other factors constant, this will cause bond prices to fall and yields to increase. The yields on all bonds will rise, however, since the U.S. government, and the SSA is a government agency, is usually viewed as the risk-free rate from a default standpoint. Since the yields on these bonds will likely increase, this will cause the yields on all bonds to rise since all other bonds have their respective risk premiums which are then added to the risk-free return associated with U.S.
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A. equal; is not equal to social costs or private costs B. do not equal; is obtained C. do not equal; is not obtained D. equal; is obtained E. equal; is not obtained
Sail Away is competing in the sailboat market with Best Sails. Sail Away drops its price below its cost and, in doing so, drives Best Sails out of the market. Once Sail Away is a monopoly, they raise their price and enjoy economic profit. This is an example of ________.
A) market division B) output restrictions C) resale price maintenance D) predatory pricing
A risk premium is additional interest, in excess of the market rate, that a bondholder receives in order to compensate him for
a. systematic risk. b. inflation. c. default risk. d. the bond discount.
Workers displaced by trade eventually find jobs in
a. another country. b. the government sector. c. the industries in which the country has a comparative advantage. d. a different company in the same industry.