Your Name: Q1(20 marks). The United States and other major westem countries are facing high inflation rates unseen in decades. Could you use the liquidity preference framework to analyze the following situations and predict the change in interest rates? 1.a The Federal Reserve, the U.S. central bank, is particularly worried about rising expectations of future inflations. Could you show how rising inflation expectations may affect interest rates and how it may undo the Fed's efforts of cutting money supply? 1.b Because the Fed has clearly stated its willing to cut money supply to fight inflation, there are worries that the economy will turn into a recession with many companies unable to repay their debts and bonds. How would such worries among investors affect interest rate? Q2(20 marks). Risk Structures of Interest Rates. 2.a Following the conditions in Q1.b, how would the worries among investors affect the yield spread between Baa corporate bonds and Aaa corporate bonds? 2.b Suppose that the U.S. government cut federal income tax rate on incomes from coupons and face values of corporate bonds. How would this policy affect the yield spread between the U.S. Treasury bonds and corporate bonds