Section Three Inflation erodes the real value of financial assets. This causes the required interest rate to increase when inflation increases: a. True b. False As interest rates increase, the fair present value of the bond should: a. Increase b. Stay the same c. Decrease d. None of the above The Federal Reserve sells securities in the open market and reserve accounts of banks decrease. This is an example of: a. Expansionary activities b. Contractionary activities c. Stay the same activities d. None of the above activities According to the pure expectation's theory: e. The term structure will always be upward sloping. f. Liquidity premia are negative. g. The long-term rate is an average of the current and expected future short-term rates. h. Markets are segmented and buyers stay in their own segment