Question

MacroEconomics - Can someone answer these questions please?

11. Which of the following long-term bonds has the highest interest rate? a. BBB corporate bonds b. U.S. Treasury bonds c. AAA corporate bonds d. municipal bonds issued by the state government 12. Suppose that the nominal interest rate increases while the expected inflation rate rises. Given this information, we know with certainty that the real interest rate a. will not change. b. will fall. c. will fall, but only if the increase in the nominal tale is smaller than the increase in expected inflation d. will fall, but only if the increase in the nominal rate is greater than the increase in expected inflation c. none of the above 13. A bank is insolvent when a. its liabilities exceed ils assets. b. its assets exceed its liabilities. c. its capital exceeds its liabilities, d. its assets increase in value. 14. IIolding large amounts of bank capital helps prevent bank failures because a. it means that the bank has a higher income. b. it makes loans casier to sell. c. it can be used to absorb the losses resulting from bad louns. d. it makes it easier to call in loans. 15. When an increase in the risk premium leads to a fall in output, a better policy tool to fix the economy is a. a decrcase in policy rale. b. an increase in policy rate. c. an increase in government spending. d. a decrease in government spending.

Answer 1

11. Answer::- c. AAA corporate bonds.

Reason:- AAA corporate bonds gives the best and highest rate of interest for the long-term. The long-term bonds are issued by the corporate companies in USA which has the credit rating of AAA. It issues the bonds more than 12 years and often the funds are invested in the companies which are listed and ensures the investors the guaranteed income when the firm has the capacity has capacity of balance the cost pull effects in order to return the dividends to bond holders.

12. Answer:- b. fall

Reason:- Usually the real rate of interest actually includes the nominal rate of interest excluding the inflation rate. The rate of inflation may decrease or increase according to the situation of money supply as well the value of the exchange currency connected to the balance of the payments as well as the increase in the GDP level. Such situation need to adjust with the flow of inflation. If the rate of inflation increases with the pressure of money supply and trade deficit, then the real of interest tend to fall.

13. Answer:- a. Its liabilities exceeds its assets.

Reason:- Usually when the bank fails to meet to pay its own debts, then we can clearly able to analyze that the bank has attained the insolvent condition. The bank attains the insolvency condition, when the rate of liquidity becomes very low and creating the imbalance situation of not advancing too much loans and attracting deposits from the new and the existing customers.

14. Answer:- c. it can be used to absorb the losses resulting from the bad loans.

Reason:- Usually banks attracts lot of deposits from the customers in order to advance the loans to the needy people. Such loans are advanced only from the pooled funds of deposits from the account holders. By parting the money, the customer need to get rate of interest from the bank. To avoid any uncertainties of debt recovery from the borrowed people, the banks should have always have high capital fund in order to compensate the loss of ineffective debt recovery system and also to safeguard the deposits of the customers.

15. Answer:- c. an increase in government spending.

Reason:- The issues of output fall due to effects of risk premium can be solved when the government spending shock operation is implemented. Spending shock refers to immediate operative plan of government spending on nation building activities and ensuring the employment opportunities which will create the negative effect of risk premium. Risk premium leads will be operated in order to counter part the future money risk. As all the employment gives the free movement of liquidity in the short-run, then it will cut short the paying for risk premium bonds in the long-term period.