Default risk is the risk associated with:
A. the illiquidity associated with small issues.
B. the bond issuer not being able to make the promised payments.
C. the effect on bond prices caused by changes in market rates of interest.
D. changes in the expected inflation rate.
Answer: B
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When money-demand shifts are the predominant disturbance
A) the interest rate depends on the position of the IS curve. B) the interest rate will be more volatile with an interest-rate target than with a money-supply target. C) the interest rate will be more volatile with a GDP target than with a money-supply target. D) a rigid money-supply target will allow the interest rate to respond to shifts in demand for money.
In the ISLM framework, the impact of monetary policy on equilibrium income is less when
A) money demand = money supply. B) money demand is infinitely elastic. C) the interest rate is low. D) the investment function has lower interest-sensitivity.
________ typically lead to increases in ________
A) decreases in interest rates; investment B) increases in disposable income; consumption C) increases in autonomous investment; investment D) all of the above E) none of the above
In theory, increased government tax rates could reduce tax revenue
Indicate whether the statement is true or false