ECON 1020 Lecture Notes - Lecture 77: Zero-Coupon Bond, United States Treasury Security, Excess Supply

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erinchimpanzee657

17 May 2017

School

University of Manitoba

Department

Economics

Course

ECON 1020

Professor

Ryan A.Compton

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ECON 1020 Full Course Notes

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Discount or zero-coupon bond (ex: us treasury bill) Called discount bond because the bonds at sold at a discount on the face value on the bond: face value = . Yield = 10% (yield and interest rate are the same thing) Supposed price increases to . 57 due to increased demand for the bond then . 57 = (1000/1+r), r = 7% Excess supply of money (due to an increase in the money supply) And therefore the price for bonds will increase. And when the price increases, interest rates will decrease. When there is an excess supply of money in the economy, there is also an excess demand for bonds. Excess demand for money would occurs when decrease in money supply. Decrease in supply in money, creates an excess demand for money, making an excess supply of bonds, decreasing the price of the bonds, and increasing the interest rate. The place where all the money goes in and out for government.

Related Questions

â¢ In terms of the demand for money, the interest rate is:

A) the price of borrowing money. B) the return on money that is saved for the future. C) the rate at which current consumption can be exchanged for future consumption. D) the opportunity cost of holding money.

â¢ When the Fed conducts open market operations, the Fed buys and sells government securities to:

A) the private sector. B) foreign countries only. C) state and local government agencies only. D) the U.S. Treasury.

An open-market purchase of government bonds by the Fed results in ________ in bank reserves and ________ in the supply of money.

A) an increase; a decrease B) a decrease; a decrease C) an increase; an increase D) a decrease; an increase â¢

A decrease in the required reserve ratio:

A) will increase the money supply. B) will decrease the money supply. C) will not change the money supply. D) will decrease the discount rate.

5. Fiscal policy is enacted through changes in

A. interest rates and the price level.

B. the supply of money and foreign exchange.

C. unemployment and inflation

D. taxation and government spending.

6. In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could

A. increase taxes by $16 billion.

B. increase taxes by $24 billion.

C. decrease government spending by $10 billion.

D. decrease government spending by $16 billion.

7. If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement

A. contractionary fiscal policy.

B. no change in fiscal policy.

C. expansionary fiscal policy.

D. countercyclical fiscal policy.

8. Most economists believe that fiscal policy is:

A. better than the monetary policy for "fine-tuning" the economy.

B. better than the monetary policy for month-to-month stabilization.

C. not as good as the monetary policy for month-to-month stabilization.

D. not very good at pushing the economy in a particular direction.

9. An increase in the legal reserve ratio

A. increases the money supply by increasing excess reserves

B. decreases the money supply by decreasing excess reserves

C. increases the money supply by decreasing excess reserves

D. decreases the money supply by increasing excess reserves

10. The discount rate is the rate of interest at which

A. Federal Reserve Banks lend to commercial banks

B. savings and loan associations lend to some builders

C. Federal Reserve Banks lend to large corporations.

D. commercial banks lend to large corporations

11. Which of the following actions by the Fed most likely increase commercial bank lending?

A. raising the reserve ratio

B. increasing the federal funds rate target

C. reducing the interest paid on excess reserves held at the Fed

D. selling bonds to commercial banks and the public

12. Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ______, which will ______ investment spending.

A. decrease; decrease

B. decrease; increase

C. increase; increase

D. increase; decrease

sapphirecrow883

1. In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold (less, more) currency or if banks choose to hold (less, more) excess reserves.

2. If the Fed makes an open-market purchase of government bonds, it will (decrease, increase) the money supply. Whereas if there is an increase in the discount rate on Fed lending, it will (decrease, increase) the money supply.

3. Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply(decreases, doesn't change, increases), but if the bank lends out some of the $100, the money supply (decreases, doesn't change, increases).

4. If the reserve ratio is 0.25 and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by how much?

cyanworm559

ECON 1020 Lecture Notes - Lecture 77: Zero-Coupon Bond, United States Treasury Security, Excess Supply

ECON 1020 Full Course Notes

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