List the Fed's main policy tools and briefly explain each one
What will be an ideal response?
The Fed's main policy tools are: required reserve ratios, last resort loans, and open market operations. Banks and thrifts are required to hold a minimum percentage of deposits as reserves. This minimum percentage is determined by the Fed and is known as a required reserve ratio. The last resort loan reflects the fact that the Fed stands ready to make loans to financial institutions when other firms may be unwilling to do so. The interest rate charged on these loans is the discount rate. An open market operation is the buying and selling of government bonds by the Fed in the open market.
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John either buys a steak or chicken when dining out. John's marginal utility for steak and chicken is given in the above table
If the price of a steak is $5 and the price of a chicken is $5 and John has $25 to spend on the two goods, what combination of steak and chicken will John consume to maximize his utility? A) 1 steak and 4 chickens B) 3 steaks and 2 chickens C) 4 steaks and 3 chickens D) 5 steaks and 6 chickens
If you own a $1,000 face value bond with one year remaining to maturity and a 3 percent coupon rate and new bonds are paying 9 percent, what is the most you can get for your old bond?
A) $917.43 B) $944.95 C) $970.87 D) $1,000
A coupon bond has an annual coupon of $75, a par value of $1000, and a market price of $900. Its current yield equals
A) 7.50%. B) 8.33%. C) its yield to maturity. D) Not enough information has been provided to calculate the current yield for this bond.
At the beginning of 2006 the yield curve was usually flat, and sometimes downward sloping (inverted). This raised concerns that a recession might be on the way. But the slope of the yield curve is only part of the story. What else is important?
What will be an ideal response?