Question

9. Macroeconomic factors that influence interest rate levels Aa Aa Apart from risk components, several macroeconomic factors such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity-influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: True False Statements During the credit crisis of 2008, investors around the world were fearful about the collapse of real estate markets, shaky stock markets, and illiquidity of several securities in the United States and several other nations. The demand for U.S. Treasury bonds increased, which led to a rise in their price and a decline in their yields. If the Fed injects a huge amount of money into the markets, inflation is expected to decline, and long-term interest rates are expected to rise. Countries with strong balance sheets and declining budget deficits tend to have lower interest rates. The Federal Reserve's ability to use monetary policy to control economic activity in the United States is limited because U.S. interest rates are highly dependent on interest rates in other parts of the world.

Answer 1

1. The given statement is TRUE, In 2008, When there was collapse of the financial market then the demand for the United States treasury Bonds will be increasing and their price will be increasing also but the YIELD will be decreasing.

2. The given statement is FALSE because if the Federal Reserve is infusing a lot of money into the market, it is going to increase the money flow and the inflation as well.

3. The given statement is TRUE because those countries who have the strong balance sheet, will always with trying to lower the interest rate and have a declining budget deficit.

4. The given statement is FALSE because interest rates in American economy is majorly dependent upon the Federal Reserve ability to change it according to the monetary policy.