Question
Which of the following statements is(are) most CORRECT regarding interest rates and term structure of interest rates? a) When time preference for current consumption is
Which of the following statements is(are) most CORRECT regarding interest rates and term structure of interest rates?
a) When time preference for current consumption is high, the interest rates tend to be low.
b) All capital markets should have the same interest rates.
c) Default risk premium, which is one component of interest rates, varies over time and tends to get larger when the economy is weaker.
d) When the Central Bank (e.g., Federal Reserve in the United States) increases the money supply to stimulate the economy, this would cause the short-term interest rates to increases and long-term interest rates to decline.
e) The yield on a 6-year corporate bond should always exceed the yield on a 6-year default-free Treasury Bond. Assuming these two bonds are in the same domestic bond market.
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