December 2020

Suppose that today you observe the following interestrates on bonds with differing times to maturity: a. Assume that the expectations theory is correct, so that there is no term premium for a two-year bond or a three-year bond. Use the information above to calculate the expected interest rate on a one-year bond one year from […]

  Yield curves generally slope upward. A downward- sloping, or “inverted,” yield curve is often thought to signal a future recession. Why might this observation be true?

When President Obama and Brazilian President Rousseff met in 2012, the interest rate on a one-year U.S. Treasury bill was just 0.2%, while the interest rate on a comparable one-year Brazilian government bond was 7.8%. With the gap between these interest rates so large, it was easy for an investor to make a high return

What is the purpose of the balance of payments? Briefly discuss the components of the current account, the capital account, and the financial account. What are a trade deficit, a current account deficit, and a financial account deficit? Is it possible for a country to run a balance of payments deficit?

Briefly explain in which of the three balance of payments accounts each of the following transactions would occur: a. An export of goods b. A purchase of bonds c. A gift to someone in another country d. A dividend paid on stock owned in another country

A political columnist makes the following assertion: “China has a huge balance of trade surplus with the rest of the world. In addition, the rest of the world is investing huge amounts in China, which is the main way that China is able to fund investments in new factories.” Use your knowledge of the balance

According to an article in the Wall Street Journal on the effects of fluctuations in the exchange value of the real on Brazilian firms, “Companies most at risk are those with large amounts of foreign currency debt.” a. What is foreign currency debt? b. Why would firms in Brazil have foreign currency debt? c. Why would having

What determines the supply of loanable funds? What determines the demand for loanable funds? In the loanable funds model, why is the demand curve downward sloping? Why is the supply curve upward sloping? An article in the Economist magazine refers to the United Kingdom as a “small open economy.” If this statement is correct, will the U.K.

Briefly explain what happens to the world real interest rate if the government of Monaco runs a large government budget deficit. Suppose this graph represents the demand and supply of loanable funds in the United States. Use the graph to answer the following questions. a. If the world real interest rate is 5%, explain what

Draw a graph of the market for loanable funds in a closed economy. Show the effect on the equilibrium real interest rate and quantity of funds loaned and borrowed of each of the following events: a. Consumers decide to spend less. b. The government decreases its spending. c. Businesses become pessimistic about future profitability. d.