Using the expectations hypothesis on the term structure of interest rates, explain the relationship between the interest rate on a one-year Treasury bond and the interest rate on a two-year Treasury bond
What will be an ideal response?
The expectations hypothesis asserts that the relationship between the interest rate on the one-year bond and the interest rate on the two-year bond should be such that the average of the interest rate on a current one-year bond and the expected interest rate on a one-year bond one year from now should equal the interest rate on the two-year bond.
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In which of the following situations would consideration of the minimum efficient scale of operation suggest that the market should be served by a single firm to minimize production costs?
A) When the LRAC curve slopes downward over the relevant range of output. B) When the LRAC curve hits its minimum point at a relatively low level of output and then increases and the demand for output is quite large. C) When the LRAC curve hits its minimum point at a relatively low level of output but then remains constant as the scale of operation is increased and the demand for output is quite large. D) When the LRAC curve initially increases and then decreases beyond some point.
Dynamic tax analysis is based on the recognition that as tax rates are increased
A) tax revenue collections will eventually decline. B) tax revenue collections will continually increase. C) tax revenue collections will change at the same rate as the tax rates. D) tax revenue collections will increase at a faster rate than the tax rate change.