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For each calculation be sure to describe what bond yields you are using as inputs (maturity date and coupon of bond; trading day reflected in
For each calculation be sure to describe what bond yields you are using as inputs (maturity date and coupon of bond; trading day reflected in data) as well as the source of your data. Explain why you chose the maturity date and coupon you used for your calculation.
- Assume throughout this question that the economy is operating somewhat under its capacity. Recent reports signal increasing unemployment, while a survey of manufacturers investment plans suggests declining confidence in the business outlook.
- Use the loanable-funds model to analyze the immediate impact of this news on the real interest rate.
- What is the Feds monetary policy response to this news likely to be? Explain.
- Use the loanable-funds model to show the combined effect of both events (the news in the survey and the Feds reaction) on real interest rates.
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