If the expected inflation rate was 2.5%, the expected real interest rate was 4.0%, and the real interest rate turned out to be 5.1%, then the nominal interest rate equals
A) 1.4%.
B) 1.5%.
C) 2.6%.
D) 6.5%.
D
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How do open market operations work?
What will be an ideal response?
Briefly explain the difference between absolute and relative PPP
What will be an ideal response?
Primary dealers are those
A) permitted to trade directly with the Fed. B) who work under the account manager at the Federal Reserve Bank of New York. C) who specialize in selling bonds to small private investors. D) responsible for assuring that interest rates do not decline unless the FOMC has given specific instructions that they decline.
Assume that the expectation of a recession next year causes business investments and household consumption to fall, as well as the financing to support it. If the nation has low mobility international capital markets and a fixed exchange rate system, what happens to the real risk-free interest rate and reserve-related (central bank) transactions in the context of the Three-Sector-Model?
a. The real risk-free interest rate falls and reserve-related (central bank) transactions become more negative (or less positive). b. The real risk-free interest rate rises and reserve-related (central bank) transactions become more negative (or less positive). c. The real risk-free interest rate falls and reserve-related (central bank) transactions remain the same. d. The real risk-free interest rate rises and reserve-related (central bank) transactions remain the same. e. There is not enough information to determine what happens to these two macroeconomic variables.