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- Which of the following statement about inflation is incorrect a. A positive inflation rate reduces purchase power of dollars b. Excess money supply increases inflation c. A positive inflation rate increases the real interest rate d. A positive inflation rate lows the real interest rateWhich one of the following statements is correct? Real rates must exceed inflation rates. Real interest rates might be positive, zero, or even negative. Nominal interest rates are not affected by inflation rates. Real interest rates will be positive as long as the inflation rate is positive. The Fisher hypothesis advocates that real interest rates follow inflation rates.If the Fed ____ the interest rates when inflationary expectations remain unchanged, the most likely result is that the value of dollar will ____ and the economy may ____. A. increases; appreciate; weaken B. decreases; appreciate; weaken C. increases; depreciate; strengthen D. decreases; appreciate; strengthen
- Consider the monetary policy rule under financial frictions. If f >0 the prevailing market real interest rate will be the federal funds rate? equal to lower than higher thanWhich of the following is true about Interest Rate? i. The Fisher Effect illustrates the positive relationship between inflation and nominal interest rates. ii. APR will always be greater than the EAR. iii. We can find the nominal interest rate by adding the default and maturity premiums to the sum of the real rate and inflation. O A. ii and i only O B. i and ii only OC. i only O D. i, ii, and iiiThe nominal interest rate is adjusted based on _______ from the real interest rate. A. government controls B. inflation C. income growth D. exchange rate movements
- When the real rate of interest is less than the nominal rate of interest, then: Multiple Choice inflation must be added to the nominal rate. investment returns do not increase purchasing power. nominal flows should be discounted with real rates. inflation is expected to occur.If interest rates increase because of a previously unanticipated inflation rate risk? long-lived debt instruments will decline more than short-lived debt instruments long-lived debt instruments will decline less than short-lived debt instruments neither set of debt instruments will decline all other things being equal, both should decline equallyWhy is it true, in general, that a failure to adjust expected cash flows for expected inflation biases the calculated NPV downward?
- H10. Assume that initially, the risk premium, ρ = 0 and that the domestic and foreign interest rates are given by R = .06, R* = .05. Suppose that the risk premium depends linearly on the difference between domestic government debt, B, and domestic assets of the central bank, A, i.e., ρ = ρ (B-A) Find the new domestic interest rate if a sterilized purchase of foreign assets adjusts A s.t. (a) B - A = -.01/ ρ0 (b) B - A = .03/ ρ0in this answer the genral inflation rate of 2% that is given is not taken into account. why?Which of the following statements is incorrect? a. when market rates are changing, the discount rate adjusts immediately. b. money market interest rates tend to respond quickly topeen Federal Reserve open market operations. c. the discount rate may be above or below other money market interest rates at a given point in time.