Contractionary Monetary Policy Can Be Expected to

question 48

Multiple Choice

Contractionary monetary policy can be expected to

• A) reduce bond yields
• B) reduce bond prices
• C) increase bond duration
• D) cause bonds to sell at par
• E) increase residual maturity

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Definitions:

Yield Curve

A graph that shows the relationship between the interest rates and the maturity dates of debt securities issued by the same issuer.

Liquidity Premiums

Additional yield that investors require to hold securities with lower liquidity, compensating them for the higher cost and difficulty of trading such securities.

Future Expected Short Rates

The anticipated interest rates for short-term debt instruments in the future, important for forecasting and investment strategies.

Forward Rate

An agreed-upon interest rate for a financial transaction that will occur in the future, used in forward contracts and rate agreements.