This is money and banking home work.
The book is The Economics of Money, Banking and Financial Markets, 9th Ed.Author: Frederic S. Mishkin
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Homework 2 –
Everything else held constant, would an increase in volatility of stock prices have any impact on the demand for rare coins? Why or why not?
What is the impact on interest rates when the Federal Reserve decreases the money supply by selling bonds to the public?
Use demand and supply analysis to explain why an expectation of Fed rate hikes would cause Treasury prices to fall.
Using the liquidity preference framework (supply curve and demand curve for money), what will happen to interest rates if the Fed increases the money supply?
Using the liquidity preference framework (supply curve and demand curve for money), show what happens to interest rates during a business cycle recession.
An important personal finance digression: One of the fascinating aspects of an interest rate is the effect of compounding (interest on interest). This is very important when it comes to saving for long-term goals, like retirement. With this in mind, please discuss some specific ways that you can use the effect of compounding to increase your ultimate retirement savings. Please use depth, not breadth – discuss one idea in detail, rather than multiple ideas, so that multiple students have an opportunity to comment. As an example, I’ll remove the first one – saving more. This does not use compounding. If I put twice as much in the bank today, I have exactly twice the retirement savings I would otherwise have. While an important step toward retirement, this does not specifically utilize the magic of compounding.
Homework 2 –
Everything else held constant, would an increase in volatility of stock prices have any impact on the demand for rare coins? Why or why not?
What is the impact on interest rates when the Federal Reserve decreases the money supply by selling bonds to the public?
Use demand and supply analysis to explain why an expectation of Fed rate hikes would cause Treasury prices to fall.
Using the liquidity preference framework (supply curve and demand curve for money), what will happen to interest rates if the Fed increases the money supply?
Using the liquidity preference framework (supply curve and demand curve for money), show what happens to interest rates during a business cycle recession.
An important personal finance digression: One of the fascinating aspects of an interest rate is the effect of compounding (interest on interest). This is very important when it comes to saving for long-term goals, like retirement. With this in mind, please discuss some specific ways that you can use the effect of compounding to increase your ultimate retirement savings. Please use depth, not breadth – discuss one idea in detail, rather than multiple ideas, so that multiple students have an opportunity to comment. As an example, I’ll remove the first one – saving more. This does not use compounding. If I put twice as much in the bank today, I have exactly twice the retirement savings I would otherwise have. While an important step toward retirement, this does not specifically utilize the magic of compounding.
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