fiscal policy pt.2

Question 1

government bond, what, how and why

Answer 1

-how gov finances spending
-iou issued by gov which you can sell and get cash
-when it sells a bond, government pays interest (safe, rate of return higher)
-gov gets cash to spend on things

Question 2

what is on a gov bond

Answer 2

-name: treasury
-coupon: interest rate fixed over duration
-year: maturity, when bond will be paid back
-price: market value of bond

Question 3

nominal value of bond

Answer 3

-different to market
-always 100 pounds
-important so people what buy know what they are getting

Question 4

flat yield

Answer 4

-rate of return on bond
-function of price and coupon
-eqn: coupon/market value x100
-assumes income is just the coupon