A one-year CD is paying 0.35 percent, a two-year CD is paying 0.75 percent, and a three-year CD is paying 1.25 percent. Applying the unbiased expectations theory, investors must expect one-year CD two years from now to have a rate of Answer percent. (Do not round intermediate calculations and round your answer to 2 decimal places)

When the Fed ______ the discount rate, they are sending a signal to the market that they would like to see ______ interest rates and ______ borrowing.

a.

lowers; higher; more

b.

raises; lower; less

c.

raises; higher; more

d.

lowers; lower; less

e.

raises; higher; less

The primary policy tool used by the Fed to meet its monetary policy goals is:

a.

Changing bank regulations

b.

Open market operations

c.

Changing reserve requirements

d.

Changing the discount rate

The default risk premium tends to _______ when the economy is _______.

a.

increase; in a downturn

b.

increase; booming

c.

stay the same; in a downturn

d.

stay the same; booming