Question

1. If investors become LESS patient, then we would expect the nominal riskless interest rate to ["increase", "decrease"] because investors want to consume ["more", "less"]    goods and services now. If they consume ["less", "more"] goods and services now, they want to   ["save more", "save less"]   which means they demand ["more", "fewer"]       bonds. If they demand ["more", "fewer"] bonds, the price of bonds decreases and the lower bond price results in an  ["decrease", "increase"]  in interest rates.

2. If investors become MORE risk averse, they would demand ["more", "fewer"] bonds. The price of bonds would ["decrease", "increase"] which would lead to interest rates ["increasing", "decreasing"]      

3. Consumers save for a variety of reasons.

Which of the following motivations for savings would be categorized as delayed consumption? Check ALL that apply.

pay for emergencies

pay for child's college

take advantage of investment deals

pay for retirement

Answer 1

If investors become LESS patient, then we would expect the nominal riskless interest rate to INCREASE

because investors want to consume MORE

goods and services now. If they consume MORE

goods and services now, they want to  SAVE LESS

which means they demand FEWER

bonds. If they demand FEWER bonds, the price of bonds decreases and the lower bond price results in an INCREASE in interest rates

2. If investors become MORE risk averse, they would demand MORE bonds (since bonds are less risky). The price of bonds would INCREASE which would lead to interest rates DECREASING

3.Delayed Consumption

pay for child's college

pay for retirement