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,-) Course Modules: Busines × y MindTap . Cengage lear (--) ? Secure I https://ngcengage.com/static/nb/ui/index.html?nbld-84 1770&nbNodelds; MINDTAP Ch 06: Assignment-Interest Rates Due on Jun 17 a 1159 PM CDT C Back to Assignment Average: Attempts: 8. Hacroeconomic factors that influence interest rate levels Apart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) polcy, 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, identily which of the following statements are true or false: Statements True False During the credit crisis of 2008, investors around the world wene fearftul about the collpie of O real estate markets, shaky stock markets, and illiquidity of several secunities in the United States and several other nations. The demand for US Treasury bonds increased, which led to a rise in their price and a decline in their yields Countries with strong belance sheets and declining budget deficits tend to have lower interest O O O if the Fed injects a huge amount of money nto the morkets, inflation is expected to decine,O and long-term interest rates are expected to rise. When the econamy is weakening, the Fed is ikely to decreose short-term interest rates Type here to searchExplanation / Answer
1) True - Because, as equity markets collapsed in 2008 and early 2009, investors sought safety in Treasuries. In Crisis risk for Corporate bonds and other equity market raise very high, which lead to Increased selling pressure by panic-stricken investors thereby lowering prices and raising yields on corporate bonds. At the same time, investors increased their demand for safer assets U.S. Treasuries, and this led to a further decline in the yields on U.S. Treasuries.
2) True - lower interest rates support economy by increasing purchasing power of society
3) False, Because when Fed will inject huge amount of money in market, banks will have more money to lend at lower interest rates and people will have more money for purchases. It will increase demand thereby leading to inflation
4) True - Because with lower interest rate, people can use more credit and will increase their purchasing power in short run. Thereby increasing demand in the economy which will help it to strengthen.
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