solution

When the Federal Reserve implements monetary policy by targeting interest rates, movement of the demand curve for money requires that the Federal Reserve respond by ________ to keep interest rates at their target value.

Select one:

a.

adjusting the money supply

b.

increasing the money supply

c.

adjusting interest rates

d.

do nothing

e.

decreasing the money supply

Which of the following is the implication of the liquidity premium theory?

Select one:

a.

Investors prefer securities of certain maturities and will not normally switch out of those maturities.

b.

The term structure must always be upward sloping.

c.

Long-term spot rates are higher than the average of current and expected future short-term rates.

d.

Investors are indifferent between securities of different maturities.

e.

Long-term spot rates are totally unrelated to expectations of future short-term rates.

Because repurchase agreements are collateralized by high-quality securities, their yields are generally_______ the yields on uncollateralized fed funds loans.

a.

the same as

b.

comparable to

c.

lower than

d.

higher than