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1) Assume that an investor is risk-neutral (i.e. assume that the investor always chooses the investment with the higher expected rate of return even

macroeconomic questions

1) Assume that an investor is risk-neutral (i.e. assume that the investor always chooses the investment with the higher expected rate of return even if it is riskier). If the yield on 1-year marketable CD's is 6% while the yield on 2-year marketable CD's is 7% and this investor purchased the 1year T-bill, what must (s)he expect to happen to short term interest rates over the coming year? 2) If the Fed lowers short term interest rates by 1/2% but investors believe this is just a temporary reduction which will only last a few months, and therefore their expectations of future short term interest rates remain unchanged, what will happen to the yield on 10 year Treasury bonds? 3) If at a point in time long term interest rates were below short term interest rates, what would this indicate about investors expectations of future short term interest rates? Explain your answer in a few sentences. 4) When the economy is close to or at full employment why is it difficult for the Fed to decide whether or not to change its interest rate target in the federal funds market? 5) Explain why monetary policy makers believe that it is important to start restraining growth in aggregate demand before there is a noticeable increase in the CPI. 6) Is the Fed currently pursuing an expansionary, neutral, or contractionary monetary policy? What if any difficulties do you think may be encountered in implementing the current policy.
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1) Assume that an investor is risk-neutral (i.e. assume that the investor always chooses the investment with the
higher expected rate of return even if it is riskier). If the yield on 1-year...

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