Which statement about the discount rate is true?
a. A small change in the discount rate has a huge impact on the available money in the economy.
b. The Fed often changes the discount rate several times in a single year.
c. The discount rate impacts the amount of reserves that a bank must have on hand.
d. It is a very important tool because banks rely heavily on being able to borrow from the Fed.
b. The Fed often changes the discount rate several times in a single year.
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One of the reasons that price elasticities of demand are always stated as positive numbers is because:
a. the numerators and denominators of the formula are both negative. b. the numerators and denominators of the formula are both positive. c. price increases always lead to increases in quantity demanded. d. price decreases always lead to decreases in quantity demanded. e. price elasticities are always negative, so we ignore the sign.
Suppose Bond X has an original price of $1,000 and a coupon rate of 8% and therefore is worth $1,080 after a year. The market has now changed so that other bonds are selling with a coupon rate of 12%. How would you calculate the right price to pay for Bond X?
a. Calculate the dollar figure that would generate $1,120 at the current interest rate and pay no more than that for the bond. b. The right price for a bond is always the face value plus the interest rate for one year. c. With a 12% coupon rate, the bond’s face value is now $880, so pay no more than that for the bond. d. Calculate the dollar figure that would generate $1,080 at an interest rate of 12% and pay no more than that for the bond.