Question

True or False (briefly explain why)

2a. Joan takes some of her income and buys Mutual fund shares. According to macroeconomics, Joan’s purchase will be considered as an investment activity.

b. Adam bought a bond at a price below its face value, so his bond yield is lower than the coupon rate.

c. The fed buys bonds from banks so the federal fund rate decreases.

d. Increase the fraction of of GDP devoted to consumption will have a positive on productivity and long run economic growth.

e. After an unsuccessful search, some of the laid off workers quit looking for jobs. The unemployment rate decreases.

Answer 1

a) True, Joan's purchase would be considered as investment because when Mutual? funds are purchased by some one that amount is invested in the production by the producers. That further yields income.

b) False, when the bond is purchased below the face value it means investment is less than face value. Coupon rate is fixed on the face value. So the buyer is spending less amount and the return on maturity would be same as for those who purchased at face value. Which means same maturity value with lower investment. Hence, higher yield.

c) True, fed fund rates are the rates at which banks lend reserves? amount to other institutions. If fed buys bond from bank, that will increase the amount available with the banks and hence they could lend money at a cheaper interest rate.

d) True, If the consumption would be increased it would lead to increased demand and hence increased production, increased employment and better standard of living. Increased employment will generate further income and long run economic growth.

e) True, unemployment rate is decreased because it counts only those as unemployed who are looking for the job.