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Match each of the following theories with its description. (Enter a value: 1-4.) Expectations theory Theory Preferred habitat Segmented markets ㅁㅁㅁ Description 1. The interest rate for each bond with a different maturity is determined by the supply of and demand for that bond, with no effects from expected returns on other bonds with other maturities. 2. The interest rate on a long-term bond will equal an average of the short-term interest rates that people expect to occur over the life of the long-term bond. 3. When short-term interest rates are low, yield curves are more likely to have an upward slope; when short-term interest rates are high, yield curves are more likely to slope downward and be inverted. 4. The interest rate on a long-term bond will equal an average of short-term interest rates expected to occur over the life of the long-term bond plus a liquidity premium (also referred to as a term premium) that responds to supply and demand conditions for that bond.

Match each of the following theories with its description. (Enter a value: 1-4.) Expectations theory Theory Preferred habitat Segmented markets ㅁㅁㅁ Description 1. The interest rate for each bond with a different maturity is determined by the supply of and demand for that bond, with no effects from expected returns on other bonds with other maturities. 2. The interest rate on a long-term bond will equal an average of the short-term interest rates that people expect to occur over the life of the long-term bond. 3. When short-term interest rates are low, yield curves are more likely to have an upward slope; when short-term interest rates are high, yield curves are more likely to slope downward and be inverted. 4. The interest rate on a long-term bond will equal an average of short-term interest rates expected to occur over the life of the long-term bond plus a liquidity premium (also referred to as a term premium) that responds to supply and demand conditions for that bond.

MACROECONOMICS
MACROECONOMICS
14th Edition
ISBN:9781337794985
Author:Baumol
Publisher:Baumol
Chapter17: The Trade-off Between Inflation And Unemploy
Section: Chapter Questions
Problem 6DQ
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Match each of the following theories with its description. (Enter a value: 1-4.) Expectations theory Theory Preferred habitat Segmented markets ㅁㅁㅁ Description 1. The interest rate for each bond with a different maturity is determined by the supply of and demand for that bond, with no effects from expected returns on other bonds with other maturities. 2. The interest rate on a long-term bond will equal an average of the short-term interest rates that people expect to occur over the life of the long-term bond. 3. When short-term interest rates are low, yield curves are more likely to have an upward slope; when short-term interest rates are high, yield curves are more likely to slope downward and be inverted. 4. The interest rate on a long-term bond will equal an average of short-term interest rates expected to occur over the life of the long-term bond plus a liquidity premium (also referred to as a term premium) that responds to supply and demand conditions for that bond.
Transcribed Image Text:Match each of the following theories with its description. (Enter a value: 1-4.) Expectations theory Theory Preferred habitat Segmented markets ㅁㅁㅁ Description 1. The interest rate for each bond with a different maturity is determined by the supply of and demand for that bond, with no effects from expected returns on other bonds with other maturities. 2. The interest rate on a long-term bond will equal an average of the short-term interest rates that people expect to occur over the life of the long-term bond. 3. When short-term interest rates are low, yield curves are more likely to have an upward slope; when short-term interest rates are high, yield curves are more likely to slope downward and be inverted. 4. The interest rate on a long-term bond will equal an average of short-term interest rates expected to occur over the life of the long-term bond plus a liquidity premium (also referred to as a term premium) that responds to supply and demand conditions for that bond.
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