1)

i) How does the Federal Reserve decrease interest rates?

A) By calling up banks' loan officers to command them to offer loans at lower rates.

B) By running federal budget surpluses.

C) By buying bonds in the open market.

D) By financing government expenditures with higher taxes rather than by issuing bonds.

ii) The yield curve for zero coupon bonds has a fairly steep upward slope. While the yield curve is not a 100% predictor, this could be an indication that

A) Interest rates are likely to go down

B) A recession is imminent

C) The yield curve is likely to be flat

D) The economy is likely to be in recovery