1. One of the concerns the Federal Reserve has had is the expansionary fiscal policy in light of Covid-19.Included in this policy is the budget deficits.This may lead to inflation.In the context of the material we have reviewed, please answer each question in regards to the idea of inflation and Economic Growth.
2. Given the Fisher Equation, what is the impact of a zero nominal interest rates (we have approached very low rates recentlyalthough not zero, it has been close) and deflation on the real interest rate.You need to write down the Fisher Equation along with this answer.(6 Points)
3. If the Federal Reserve's actions result in extremely low Nominal Rates, how would this impact the Demand for Bonds?What would this response do to the Price of Bonds and Interest Rates?If the Government is running a budget deficit, how does this impact the Supply of Bonds?Notethis creates a dilemma in regards to the ultimate goal of low Nominal Ratesexplain this dilemma.(6 Points)
4. If short term interest rates are lowered to approximate zero percent, how does this impact the Bond Yield Curve (is it normal or invertedthere is an answer that involves one of these issues only).Please draw the curve with the axes labeled properly.In many cases, students draw the figures and graphs on a sheet of paper and scan itthey submit it to the canvas site as a separate attachment.Other students use programs, like excel and Microsoft paint, and put it directly in their exam.Either approach is acceptable.However, if requested, the figures and graphs are required.(4 Points)