Describe and explain the relationship between the price of bonds and the interest rate
What will be an ideal response?
There is an inverse relationship between the price of a bond and the interest rate. If a bond pays interest of $100 a year and the price of the bond is $1000, the interest rate is 10 percent. If the interest rate falls to 5 percent, then the price of a bond paying $100 a year interest would rise to $2000. The interest rate is the amount of interest paid per year divided by the price of the bond, so the interest rate and the price of the bond are inversely related.
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Deadweight loss
A. can result from underproduction, but not from overproduction. B. can result from overproduction, but not from underproduction. C. is measured as the combined loss of consumer surplus and producer surplus. D. results from producing a unit of output for which the maximum willingness to pay exceeds the minimum acceptable price.
If the exchange rate falls, then the expected profit from holding the currency
A) does not change. B) increases. C) decreases. D) can either increase or decrease.
Distinguish between a foreign bond and a Eurobond
What will be an ideal response?
The above figure shows supply and demand curves for milk. If the government passes a $2 per gallon specific tax, the loss in consumer surplus will equal
A) b + c + f + g. B) f + g. C) b + f. D) c + g.