A. In the pandemic and aftermath of the global financial crisis, interest rates in Europe and the United States, as well as in Japan, have fallen to extremely low levels (even negative rates). Why are interest rates in these countries at such low levels? Which statement is NOT correct?

Low and even negative inflation raises the supply of loanable funds and causes the demand of loanable funds to contract.

All these countries have been experiencing very high inflation. Investors have concern about the high inflation and hence supply less loanable funds.

Large investors and banks found it more convenient to hold Treasury bills because they are stored electronically. For that reason, investors and banks were willing to accept negative interest rates.

All these countries have also been experiencing very low economic growth rates. The wealth declines lead to the reduction of loanable funds supply. The lack of profitable investment opportunities leads to the reduction of loanable funds demand.

B. During the recent crisis, investors worldwide search for safe haven for their fund. The consequence is that a huge amount of funds was invested in U.S. treasury securities and pushed down the interest rate.

True

False

C. If there is a steep downward-sloping yield curve, what is the market predicting about the movement of future short-term interest rates?

The interest rate is going down

The interest rate is staying at the current level

The interest rate could go up, go down, or stay at current level.

The interest rate is going up