Assume an investor has a choice of 3 consecutive one-year bonds or one 3-year bond. Assuming the expectations hypothesis of the term structure of interest rates is correct the:
A. three consecutive one-year bonds must have the same interest rate.
B. average interest rate of the three consecutive one-year bonds should be less than the 3- year bond to reflect the risk premium.
C. interest rate of the 3-year bond should equal the average interest rate of the 3 one-year bonds.
D. current one-year interest rate must equal the current 3-year interest rate.
Answer: C
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If the Federal Reserve purchases newly issued government debt
A) the effect is as if the Treasury had printed money to cover the deficit. B) the effect is the same as borrowing from the public. C) the money supply decreases. D) existing money is destroyed.
]Which of the following would not cause the AD curve to shift?
a. A change in the money supply b. The public's expectations of a fall in the interest rate c. A change in aggregate expenditure caused by a change in the price level d. A change in fiscal policy e. A change in autonomous consumption spending
With asymmetric information firms might be reluctant to improve the quality of their products because
A) it costs them more to produce the better quality product. B) they are not able to completely capture the benefits of the improvement. C) consumers do not value the better product. D) consumers are better informed about the product and value the new product less.
The marginal benefit and marginal private cost curves for aphrodisiacs are given as follows:
MB = 200 - Q MPC = Q In addition to private costs, there is a marginal external cost of $10 per unit of output. What is the efficient level of output? A) 0 B) 55 C) 95 D) 100 E) none of the above