Question

Ture or False.

1. In addition to the fact the opportunity cost of using a commodity as the medium of exchange is substantially greater than the opportunity cost of using a commodity as the medium of exchange is substantially greater than the opportunity cost of using fiat money, the monetary authority in an economy in which the medium of exchange is fiat money has greater discretion in its pursuit of monetary policies that deliver price stability.

2. According to fisher equation, if expected inflation increase by x percent the nominal interest rate will also increase by x percent but th real interest rate will not be affect.

3. The demand curve for loanable funds reflects the behavior of deficit spending units while the behavior underlying the bond demand curve is that of surplus spending units.

4. The ex-post real interest rate is most useful for planning purposes while the ex-ante real interest rate is more useful for ecaluating results of prior decisions.

5.A fundamental problem with yield curves based on corporate bonds is that differing degrees of default risk among corporate bonds would make it difficult to unambiguously assign responsibility for observed yield differentials to variation in length of time to maturity.

Answer 1

Q1 false

Opportunity cost of fiat money is greater than the opportunity cost of using a commodity as medium of exchange.

Q2 trues

according to Fisher

Real interest rate = nominal interest rate - expected inflation rate

If expected inflation increases by x % the nominal interest rate will also increase by x% then real interest rate not affected . It is true

Because equal change in both offset the change and result in same real interest rate

Q3 false

Demand curve of loanable funds and demand curve if bonds reflects demands of investors who doesn't have enough resources so they finance their deficits through borrowing

Q4 true

Ex post interest rate = Ex ante interest rate + inflation rate

So ex post or nominal interest rate will help in making future policies which ex ante or real interest rate helps in evaluating the policy because it takes inflation rate into account.

Q 5 true

This is problem of yield bonds as during the time of maturity , market interest rates can differ .