1. Explain what effect a large federal budget deficit might have on interest rates. Explain how Feds decision to purchase government bonds affects interest rates.

2. the president of the united states announces in a press conference that he will fight the higher inflation rate with a new anti-inflation program . predict what will happen to interest rates if the public believes him.

3. the chairman of the Fed announces that interest rates will rise sharply next year, and the market believes him. What will happen to todays rates on corporate bonds?