Question

1. True or False: The FOMC wishes to increase the discount rate by 25bps – if the current rate is 2.500%, the new rate will be 2.500% x (1 + 25bps) = 2.500% x (1 + 25%) or 3.125%.

2. Empirically, the mortgage rate in the United States has the highest correlation with which market interest rate?

A. Credit Default Swap Rate1
B. Prime
C. LIBOR
D. Yield on the US government’s ten-year bond E. Fed funds’ rate

3. True or False: If the market expectations for inflation increases, interest rates will likely decrease.

4. True or False: An increase in the marginal tax rates for all U.S. taxpayers would probably result in reduced supply of funds by households and thus, a DECREASE in market interest rates.

Answer 1

And 1 false =) 100 basis points I basis point = = 100 25 basis point = 25 100 so = 0.25% = 2.500Y (17 2568) = 2.500%. (1+ 0.25%) = 2.50625 And 2 option D Morriage to Rate in with yield on United & states has highest Tourrelation the us goverment's ten year o Ars 2 option Federal Reserve control moretages Rates through monetary policy the Influence of the Federal Reserve can be so seen in how its action affect the price of credit which is then reflected in Mortgage Rates Ans 3 False If the market Expectation for Inflation Increases interest Rate will increase as to control noney supply in the market government will ye Contractionary monetary policy (ie increase the Interest Rate) ny Tле As the tax Rate de creuses go goverment Revenue decrease bo to come manage this go govert Fed. Reserve Reduce interest Rate