Author Question: Which of the following represents the ratio of coupon payments to the price of a bond? A) the ... (Read 74 times)

fagboi · **on:** Jun 30, 2018

Which of the following represents the ratio of coupon payments to the price of a bond?

A) the interest rate
B) the discount rate
C) the coupon rate
D) the risk premium
E) the current yield

Question 2

Explain what effect changes in each of the following variables has on the demand for central bank money: (1 ) the interest rate, i; and (b) real income, Y.

What will be an ideal response?

jackie · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

E

Answer to Question 2

Interest rate. A reduction in the interest rate will cause an increase in money demand (movement along the demand curve). This will cause an increase in the demand for currency that will cause an increase in the demand for central bank money. The increase in the demand for money will also cause an increase in the demand for deposits and, therefore, an increase in banks' demand for reserves. This will also cause an increase in the demand for central bank money. In this case, we only move along the demand curve.

Real income. An increase in Y will cause an increase in money demand and, as described above, an indirect increase in the demand for currency and reserves. So, this increase in Y will cause an increase in the demand for central bank money and a shift in the curve.