Econ 110B Ch15 Questions

Econ 110B Ch15 Questions - 6) Suppose individuals expect an...

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Economics 110B Practice Questions for Chapter 15 Questions 1) What does the term structure of interest rates represent? 2) When interpreting bond prices as present values, what factors determine the price of a two-year discount bond? Include in your answer an explanation of how changes in each of these factors affects the price of a two-year discount bond. 3) The yield curve indicates that the two-year interest rate will be a function of what variables? Include in your answer an explanation of how changes in these variables will affect the two-year interest rate. 4) Suppose the yield curve is downward sloping. How should one interpret this particular yield curve? 5) Suppose the central bank implements a monetary expansion in the current period and is not expected to continue this policy in the future. What effect will this policy will have on the shape of the yield curve and on stock prices?
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Unformatted text preview: 6) Suppose individuals expect an increase in future taxes. What effect will this expected increase in future taxes will have on the yield curve and on stock prices in the current period? 7) What is the fundamental value of a share of stock? 8) Why might stock prices deviate from their fundamental values? 9) Suppose the Fed implements a monetary expansion that is at least partially unexpected. What effect will this have on stock prices? 10) Suppose the government enacts a cut in government spending that is at least partially unexpected. What effect will this have on stock prices? 11) Suppose there is a report that the unemployment rate unexpectedly increased in the previous month. To what extent will the expected central bank response to this news affect how stock prices will respond to this report of a higher than expected unemployment rate? Explain. 1...
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This note was uploaded on 05/01/2011 for the course ECON 110B taught by Professor Peters during the Spring '07 term at UCSD.

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