Answer the following questions (40 points) a) Using the liquidity preference framework, show why interest rates are pro-cyclical (rising with GDP). b) If the price level falls next year, remaining fixed thereafter, and the money supply is fixed, what is likely to happen to interest rates over the next two year? c) Thai government bond yield curve as of Wednesday, October 9,2019 is shown below. During TTM between 0 and 10 years, explain the yield curve by using the expectation theory and the segmented markets theory. 3.00 2.50 2.00 Yield (%) .50 -DO 1.00 0.50 0.00 20 25 30 TTM (yrs.) d) Explain the differences between the two yield curves. Why does the zero coupon yield curve was below the US treasury yield curve? Using the US treasury yield curve, what is the market predicting about the movement of future short term interest rates and what might the yield curve indicate about the market's predictions for business cycle and the inflation rate in the future US Treasury Yield Curve 20/07/2007 Zero Coupon Yield Curve vs US Treasury Yield Curve as of Friday, July 20, 2007 US Treasury Yield Curve . Zero Coupon Yield Curve 6.00 5,00 4.00 Yield (36) 3100 2.00 0.00 10 15 20 TTM (yrs.)