Author Question: Suppose the yield curve is initially horizontal. Suppose the current one-year interest rate ... (Read 156 times)

serike · **on:** Jun 30, 2018

Suppose the yield curve is initially horizontal. Suppose the current one-year interest rate increases by 4 while the expected future one-year interest rate does not change. Which of the following will tend to occur?

A) i2t will increase by 4
B) i2t will increase by 2
C) i2t will increase by less than 2
D) i2t will decrease by 2

Question 2

We would expect which of the following to occur when the central bank pursues expansionary monetary policy?

A) an increase in bond prices and an increase in the interest rate (i)
B) a reduction in bond prices and an increase in i
C) an increase in bond prices and a reduction in i
D) a reduction in bond prices and a reduction in i
E) none of the above