3. According to an article on the junk bond market in Europe published in the Economist in 2016, "The spread (the interest premium over government borrowing rates) paid by junk-bond issuers has risen by nearly three-and-a-half percentage points since March last year." (a) How can you tell whether a newly issued bond is a junk bond? (b) Why would the spread between government bonds and junk bonds have been rising? (c) Does this increase in the spread make junk bonds a better or a worse investment compared with buying government-issued bonds? Briefly explain.

3. Discuss any three factors that determine Interest Rates?

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8. Suppose the government borrow $20 billion more next year than this year. Use a supply-and demand diagram to analyze this policy . Does the interest rate rise or fall ? What happens to investment ? To private saving ? To public saving ? To national saving ? Compare the size of the changes to the $20 billion of extra government borrowing.  How does the elasticity of supply of loanable funds affect the size of these changes ?  How does the elasticity of demand for loanable funds affect the size of these changes?  Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future . what does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects you discussed in part (a) and (b)?