Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why
a. a U.S. government bond or a Venezuelan government bond
b. a U.S. government bond or a municipal bond with the same term and issued by a creditworthy municipality.
c. a 6-month Treasury bill or a 20-year Treasury bond
d. a Microsoft bond or a bond issued by a new recording company
a. The Venezuelan government bond would likely pay a higher interest rate because the market perceives a higher level of risk for the Venezuelan bond relative to the U.S. bond.
b. Because of the tax advantages of municipal bonds, the U.S. government bond would likely pay the higher interest rate.
c. The 20-year bond would likely pay a higher interest rate than would the 6-month bill. The future is uncertain and therefore more risky for a 20-year bond than for a 6-month bill.
d. Since Microsoft is less likely to default than a new and unknown company, the interest on the bond of the new company is likely to be higher.
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According to the AS-AD model,
A) the equilibrium is where the AS curve crosses the AD curve, but the amount of real GDP at this point is not always equal to potential GDP. B) the aggregate quantity supplied is typically greater than the aggregate quantity demanded, thereby leading to unemployment. C) the aggregate quantity demanded is typically greater than the aggregate quantity supplied, thereby leading to inflation. D) changes in the amount of potential GDP is the only factor that shifts both the aggregate supply curve and the aggregate demand curve. E) the AS curve is always equal to potential GDP.
A risk averse person will always buy insurance against risk
Indicate whether the statement is true or false