Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 15, Problem 2QP
To determine
Change in
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Suppose most of your savings are in bonds and, according to an article in the Wall Street Journal, the Fed announces that it will carry out a contractionary monetary policy. What should you do? Should you continue to hold your bonds or should you move your funds into bank accounts?
Use the liquidity preferences model to show what will happen to the interest rate if it is below the equilibrium interest rate. Make sure you integrate the bond market changes into your answer.
Why are bond prices and interest rates inversely related?
Chapter 15 Solutions
Macroeconomics
Ch. 15.1 - Prob. 1STCh. 15.1 - Prob. 2STCh. 15.1 - Prob. 3STCh. 15.4 - Prob. 1STCh. 15.4 - Prob. 2STCh. 15.4 - Prob. 3STCh. 15 - Prob. 1QPCh. 15 - Prob. 2QPCh. 15 - Prob. 3QPCh. 15 - Prob. 4QP
Ch. 15 - Prob. 5QPCh. 15 - Prob. 6QPCh. 15 - Prob. 7QPCh. 15 - Prob. 8QPCh. 15 - Prob. 9QPCh. 15 - Prob. 10QPCh. 15 - Prob. 11QPCh. 15 - Prob. 12QPCh. 15 - Prob. 13QPCh. 15 - Prob. 14QPCh. 15 - Prob. 15QPCh. 15 - Prob. 16QPCh. 15 - Prob. 17QPCh. 15 - Prob. 18QPCh. 15 - Prob. 1WNGCh. 15 - Prob. 2WNGCh. 15 - Prob. 3WNGCh. 15 - Prob. 4WNGCh. 15 - Prob. 5WNGCh. 15 - Graphically portray the Keynesian transmission...Ch. 15 - Prob. 7WNGCh. 15 - Prob. 8WNG
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- What are the goals of monetary policy? Which goal is the most important or the principal goal?arrow_forwardConsider the statement "When people earn more money they obviously will hold more bonds".What is wrong with the statement?arrow_forwardWhat problems will the federal reserve face if people are unemployed and facing inflation?arrow_forward
- If the Federal reserve decides to reduce the money supply through open market operations, then the price of bonds will _____ and the rate of return for bonds will _____ increase or decrease?arrow_forwardwhat happens if consumers expect future interest rates to fall?arrow_forwardA mission of the Federal Reserve is to promote a combination of low interest rates and low unemployment. Why can it be difficult to accomplish both of these at the same time?arrow_forward
- When tensions rise or a war erupts between the United States of America & China, bond prices in other countries may tend to decline. What is the link between conflict issues & bond prices?arrow_forwardWhen the Federal Reserve buys bonds on the open market, it decreases the money supply. True False Click to select your answer.arrow_forwardWhat is a Liquidity Preference Theory?arrow_forward
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