Question

Q6. Why do Government Treasury bills have lower interest rate than large-denomination negotiable bank CDs?

Q7. Interest rates are among the most important monetary variable watched in the economy. Briefly explain why interest rate is important for the economy.

Answer 1

6.Government treasury bills have lowest interest rate because they are the most secure bills and they are protected by the Federal Government Security so they will be offering the lowest rate of return but highest rate of security, rate of interest is lowest because they are appropriate for those investors who are looking for safe Haven.

negotiable commercial of deposits are short term money and they are not backed by any guarantee by government so they will be having a higher rate of interest because they are more risky.

7. Interest rate is important for economy because it is used as the the tool by Federal Reserve to regulate the money flow into the economy by lowering or increasing interest rate.

In the current scenario, when there is a panic in the whole system due to coronavirus, Federal Reserve has slashed the interest rates to zero in order to stimulate the demand in to the economy