Explanation sentences

Blackboard X X COQ Remaining Time: 49 minutes, 53 seconds. Question Completion Status: In country Macrolandia there are only one-year and two-year bonds. The current and the expected future inflation rates are both zero, so that the real and the nominal interest rates are equal. In period t + 1 ("the future"), a standard IS-LM model describes the functioning of the economy. In particular, in the year t + 1 consumption depends only on disposable income at t + 1, and investment on the interest rate and output at t + 1 only. Turning now to the current period (t, "the present"), consumption is increasing in both current and expected future disposable income, Ct = C(Yt - To, Yet1 - Ti+1), investment depends positively on current and expected future income levels, and negatively on the current and expected future levels of short-term interest rates, the demand for money has the usual functional form, and G and T are exogenous as usual. Starting from an initial equilibrium, at time t the central bank of Macrolandia, that chooses the interest rate, announces that it will raise the policy rate by two percentage points both at time t and at time t + 1. If in Macrolandia, at time t the yield curve is initially horizontal, and assuming that the announcement is unexpected and believed by the individuals in the economy, which of the following three figures (where the new curve is labelled "after"), describes the effect of the announcement on Macrolandia's yield curve? At time t, will the yield to maturity on two-year bonds change? If so, by how much? If not, why? Yield "after" Yield Yield to to "after" to "after" maturity - - - maturity maturity "before" "before" "before" Save and Submit to save and submit. Click Save All Answers to save all answers. Save