Interest Rate 8765432 11 0 Sm Dm 100 200 300 400 500 600 Quantity of Money ($ billions) If the interest rate was 8 percent, people would: sell bonds, which would cause bond prices to fall and the interest rate to fall buy bonds, which would cause bond prices to rise and the interest rate to fall have insufficient liquidity, which would cause them to reduce their spending on consumer goods buy bonds, which would cause bond prices to fall and the interest rate to rise sell bonds, which would cause bond prices to fall and the interest rate to rise

Interest Rate 8765432 11 0 Sm Dm 100 200 300 400 500 600 Quantity of Money ($ billions) If the interest rate was 8 percent, people would: sell bonds, which would cause bond prices to fall and the interest rate to fall buy bonds, which would cause bond prices to rise and the interest rate to fall have insufficient liquidity, which would cause them to reduce their spending on consumer goods buy bonds, which would cause bond prices to fall and the interest rate to rise sell bonds, which would cause bond prices to fall and the interest rate to rise

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter19: The Basic Tools Of Finance

Section: Chapter Questions

Problem 3PA

See similar textbooks

Similar questions

A mortgage 105m is a loan that a person makes to purchase a house. Table 19.11 provides a list of the mortgage interest rate for several different years and the rate of inflation for each of those years. In which years would it have been better to be a person borrowing money from a bank to buy a home? In which years would it have been better to be a bank lending money?
Imagine that a local water company issued 10,000 ten-year bond at an interest rate of 6. You are thinking about buying this bond one year before the end of the ten years, but interest rates are now 9. Given the change in interest rates, would you expect to pay more or less than 10,000 for the bond? Calculate what you would actually be willing to pay for this bond.
Calculate the equity each of these people has in his or her home: Fred just bought a house for 200,000 by putting 10 as a down payment and borrowing the rest from the bank. Freda bought a house for 150,000 in cash, but if she were to sell it now, it would sell for 250,000. Frank bought a house for 100,000. He put 20 down and borrowed the rest from the bank. However, the value of the house has now increased to 160,000 and he has paid off 20,000 of the bank loan.
What are some ways that someone looking for a loan might reassure a bank that is faced with imperfect information about whether the borrower will repay the loan?
Investors sometimes fear that a high-risk investment is especially likely to have low returns. Is this fear true? Does a high risk mean the return must be low?
What is a dividend?
What is a bond?
If you owned a small firm that had become somewhat established, but you needed a surge of financial capital to cant out a major expansion, would you prefer to raise the funds through borrowing or by issuing stock? Explain your choice.