Suppose the yield on a ten-year U.S. Treasury note was 2.05% on April 2nd, 2018. Now...

Suppose the yield on a ten-year U.S. Treasury note was 2.05% on April 2nd, 2018. Now suppose that the next morning you read the following headline in the Wall Street Journal: “Republican Leadership in Congress Will Not Shut Down Government Over Debt Limit.” Further suppose that bond traders interpret the increase in the federal debt ceiling as a decrease in the default risk associated with U.S. Treasury securities. Ceteris paribus, it follows that the yield on the ten-year note will _____; while the coupon payment on the ten-year note will _____.

A. increase, remain unchanged

B. decrease, remain unchanged

C. remain unchanged, increase

D. remain unchanged, decrease

2. Which of the following statement is wrong?

A. Technological progress could yield ways to avoid limits of natural resources.

B. Countries that start off poor tend to grow more rapidly than countries that start off rich.

C. ranking of countries by income can change substantially in the long run only because of 0.3% annual differences in GDP per capita growth rates.

D. Higher saving rate is guaranteed to yield a higher growth rate of real GDP per capita for a modern economy.

Homework Answers

Answer #1

Decrease because yield=interest/price. Due to less default rate there will be more demand for bonds and thus price will rise and so will yield. Coupon payment will remain unchanged

2 higher saving rate...... There is no such guarantee even though it can led to higher real GDP per capita growth quite often E. G population may rise which will decrease real GDP per capita. Countries like Japan have high saving rate but their current growth rate is not satisfactory. Usa has lower saving rate but greater growth rate

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