Exam 4: The Level of Interest Rates

All but one of the following factors influences the real rate of interest?

Declining interest rates can be caused by an upward shift in the demand for loanable funds relative to the supply of loanable funds.

Which one of the following is NOT an explanation for paying interest on borrowed money?

Expected increased inflation usually drives up bond prices.

An increase in the desired saving rate will increase real interest rates.

The realized rate of return may be negative if

Nominal rates generally exceed the real rate.

If nominal interest rates are 10% and expected inflation is 5%, according to Fisher equation,

Nominal interest rates reflect anticipated inflation.

Which of the following factors influence the real rate of interest?

Interest is

Basic approaches to forecasting interest rates include

In January 2011, a Japanese investor placing money in dollar denominated assets desires a 5% real rate of return. Then international expected inflation rate is about 2.5% and the dollar is expected to decline against Japanese Yen by 10% over the investment period. What is the minimum required rate of return for this Japanese investor?

The expected real rate of interest is likely to be negative.

________ real rates are almost always positive; _______real rates may be negative.

The lower a consumer's positive time preference for consumption,

Explain how price expectations influence the level of interest rates. What impact has inflation premiums had on interest rate levels in recent years?

A decrease in interest rates may best be related to

Calculate the price of a $1000 face value bond, maturing in three years with a 9 percent coupon (paid semiannually) if current real rates of interest are 4 percent, historical inflation rates are 3 percent, and expected inflation rates are 4 percent. (Use if next chapter covered in exam)

An increase in rates of return on real capital investment will increase real interest rates.