quiz 1 questions - ch 1-5 Flashcards
What is moral hazard?
Actions taken by government to support businesses that may encourage future risky behavior
What was the rate of unemployment in April 2020
14.8%
What makes up a truly risk-free investment?
no default(credit) risk and strong liquidity
Other things being equal, the yield required on A-rated bonds should be ____ the yield required on B-rated bonds whose other characteristics are exactly the same
less than
What is the Fed’s target for inflation
2%
The achievement of the Federal Reserve mandate is complex, one of the ____ significant impacts on financial markets and economic activity and one of the _____ watched and prognosticated elements of market and institutions.
most; most
The percentage of the U.S. economy driven by consumer spending is approximately _____%
70%
The term don’t fight the fed was coined because:
Actions of the Federal Reserve have a major impact on interest rates, economic activity and markets
Assume that the Treasury bond yield today is 2 percentage points lower than it was one year ago. Also assume that the credit (default) risk premium of an A-rated bond increased by 0.4 percentage point since one year ago. A newly issued A-rated bond will likely offer a yield today that is ____ the yield that was offered on an A-rated bond issued one year ago
less than
The yield offered on a debt security is ______ related to the prevailing risk-free rate and ________ related to the security’s risk premium.
positively; positively
The main purpose of the Federal Reserve’s Purchase of Corporate Bonds during the COVID crisis was
to ensure the flow of credit to businesses
What was the rate of unemployment in February 2020?
3.5%
The Federal Reserve’s decisions during the COVID-19 crisis are
A balancing act. The decisions may be seen as controversial as they put taxpayer money at risk (with a Treasury backstop) and save companies that should be allowed to fail
With regard to monetary policy, which of the following is under the direct control of the Federal Reserve’s Board of Governors?
revising reserve requirements for depository institutions
