Which are reasons that lead to Treasury rates being artificially low (select all that apply)?
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Suppose we have two separate markets for assets: the market for safe assets and the market for risky assets. Now consider the market for safe assets. Many market observers believe two forces are causing high prices of safe assets (or equivalently, low interest rates on safe assets). First, following the Asian financial crisis in the late 1990s, many large emerging-market nations (e.g., China) sought to build up their foreign reserves of safe assets. Second, before the Great Recession, sovereign debt (e.g., US Treasury Bonds, German Treasury Bonds, Spanish Treasury Bonds, Greek Treasury Bonds, etc.) and AAA mortgage-backed securities were considered safe assets. During the Great Recession, many of these assets were no longer classified as safe assets. Starting from an initial equilibrium in the market for safe assets, what is the impact on the price and quantity of safe assets from an increased desire among emerging markets to build up their foreign reserves of safe assets? Starting from an initial equilibrium in the market for safe assets, what is the impact on the price and quantity of safe assets from the realization that many mortgage-backed securities and sovereign debts were no longer safe? Suppose that these two forces were the only forces affecting the market for safe assets. If you observe the price and quantity in the safe asset market after the Great Recession, how could you determine which force was more important?
Akash M.
2. The root causes of the Global Financial Crisis in Europe were (Check all that apply): A. Excessive lending by banks accessing funds from the Global Savings Glut B. A housing crisis C. The lowering of interest rates D. An across-the-board lack of confidence in depositor banks by new retirees 6. Which of the following is not a reason that Iceland's GKL banks sought out online depositors? (Select all that apply) A. A fear that the Krona would be devalued if Iceland joined the European Union B. The need to address a funding gap resulting from a lending boom C. Concern from the investment community about its ability to maintain its wholesale lending sources, which were largely foreign D. New Icelandic banking regulations that restricted the size of deposits that each citizen could maintain
Classify each of the following as either a policy instrument or an intermediate target, and explain why. a. The ten-year Treasury bond rate b. The monetary base c. $M 1$ d. The fed funds rate
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