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Blank Exam 3 - Econ 317 Exam 3 1 We know that short-term...

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Econ 317 Exam 3 1. We know that short-term interest rates on bonds and long-term interest rates on bonds must move together (within a certain range). In other words, over time, the spread between these securities is constrained from diverging too much. Explain – thoroughly – why this scenario must hold.
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2. In class, we said that the Fisher equation views the nominal interest rate as an ex ante real interest rate. a. Describe what this statement means b. Describe the difference between the ex-ante real and the ex-post real interest rates.
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3. Imagine that we have “recovered” and the economy is expanding. In this scenario, expected returns are rising and profit opportunities are increasing. Assuming that the supply-side effects dominate, use a (graphical) supply/demand analysis to explain what will happen to the equilibrium price and interest rate of bonds.
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4. Alan Greenspan recently said the following: “The beginning of the financial crisis can be clearly dated by looking at the increased risk premium – the spread – between U.S. Treasuries and Corporate Bonds.” Use a (graphical) supply/demand analysis to (thoroughly) explain this statement.
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5.
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