Question

You go to the Wall Street Journal and notice that yields on almost all corporate and Treasury bonds have decreased. The yield decreases may be explained by which of the following?

A. an increase in U.S. inflationary expectations
B. newly expected decline in the value of the dollar
C. an increase in current and expected future returns of real corporate investments
D. decreased Japanese purchase of U.S. Treasury Bills/Bonds
E. none of the above

Answer 1

E) none of the above

Step-by-step explanation:

A. an increase in U.S. inflationary expectations HIGHER INFLATION WOULD INCREASE THE INTEREST RATES, NOT DECREASE THEM

B. newly expected decline in the value of the dollar HIGHER INFLATION = LOWER VALUE OF THE DOLLAR ⇒ WOULD INCREASE THE INTEREST RATES, NOT DECREASE THEM

C. an increase in current and expected future returns of real corporate investments WOULD INCREASE THE INTEREST RATES

D. decreased Japanese purchase of U.S. Treasury Bills/Bonds IF THE DEMAND FOR US SECURITIES DECREASES, THEIR PRICE WILL FALL, WHICH WOULD RESULT IN AN INCREASE IN INTEREST RATES