Suppose that several months of data showed the CPI increasing at a 4.5% annual rate due largely to increases in the price of energy and food related commodities following several years when the CPI only increased by 1% per year. Suppose this increase causes investor expectations of annual inflation to also increase from 1% to 4.5%. Assume, at the same time that fears of higher inflation creates concerns that rising interest rates will derail the economic recovery and lead to another recession. Assume the resulting increase in risk aversion among investors drives the expected real rate of return required to equate investor demand to the existing supply of 1 year Treasury notes down to 0.5 % from 2%. What would you expect to happen to the nominal yields on 1-year T-notes during the period over which these changes in inflation expectations and required real yields occurred?

Posted Date: 2/24/2013 1:48:54 PM | Location : United States

Ask an Expert

Related Discussions:- Macroeconomics, Assignment Help, Ask Question on Macroeconomics, Get Answer, Expert's Help, Macroeconomics Discussions

Write discussion on Macroeconomics
Your posts are moderated

Write your message here..

Related Questions

Market structure, Ask question #Minimum 100 words accepWith aid of evidence... Ask question #Minimum 100 words accepWith aid of evidence in the given article, comprehensively discuss the market structure in the South African mobile telecommunications industry

Explain the concept of elasticity, Explain the concept of elasticity and de... Explain the concept of elasticity and describe why the supply of petrol in the short run is relatively inelastic.

Trade-off proposals, While referring to the "EYE on YOUR LIFE" section on p... While referring to the "EYE on YOUR LIFE" section on page 235 of the textbook, and the economic concepts you have accumulated during our course, consider the trade policies that se

Determine the inflation rate in germany between 1992-2010, Inflation in Ger... Inflation in Germany Once we have monthly data on a price index we can calculate inflation. In most nations, the percentage change in price index during one month is small. So,

Influx of foreign labor, If a nation were to experience an influx of foreig... If a nation were to experience an influx of foreign labor into the market for corn production, the production possibilities frontier for the nation would: a. shift inward due to

Illustrate website of at least 3 of the companies, Review the most current ... Review the most current results of FORTUNE Magazine's annual ranking of America's "100 Best Companies to Work For." Explore the website of at least three of the companies noted. De

Monetary, 1. Suppose the banking system has reserve of $750000, demand depo... 1. Suppose the banking system has reserve of $750000, demand deposits of $2500000 and a reserve requirement of 20%. a. if the fed now purchases $125,000 worth of govt bonds from t

Relate central banks with commercial banks, Relate central banks with comme... Relate central banks with commercial banks In many countries, the central bank imposes reserve requirements. This means that commercial banks are obliged to hold a certain perc

Economic functions of money - a medium of exchange, Economic functions of m... Economic functions of money - A medium of exchange This is its most important role. Without money we would live in a barter economy where we would have to trade goods and

Concept of preference - utility function, Concept of Preference, Utility Fu... Concept of Preference, Utility Function: Concept of Preference, Utility Function and Indifference Curve  Consumer preference ('R') specified by the above axioms can be represe