If a higher inflation is expected, what would you expect to happen to the shape of the yield curve? Why?
What will be an ideal response?
The yield curve should have a steep upward slope. Nominal interest rates will increase if the inflation rate increases, therefore, bond purchasers will require a higher term premium to hold the riskier long-term bond.
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Which of these changes is likely to follow when the Fed purchases U.S. government securities? a. Aggregate demand will decrease
b. The demand for financial securities will increase. c. Rate of interest will increase. d. Planned investment spending will increase. e. Real GDP will decrease.
Which is not a measure instituted to offset the moral hazard problem created by the FDIC?
A. Require financial transactions essential to the economy to remain in banks B. The creation of the Federal Reserve Bank C. Established strict regulations of banks D. Separating banks from other financial institutions
Refer to the figure above. Social welfare will be maximized if ________ units of Good Y are produced
A) 9 million B) 20 million C) 13 million D) 16 million
Refer to Figure 10.1. If the level of real GDP is initially Y2, firms will ________ production until equilibrium is reached at ________
A) increase; Y2 B) decrease; Y2 C) increase; Y1 D) decrease; Y1