Answer Happy

Q2 Decide if the following statements are true or false and then explain your answer using graphs, equations and/or analysis where needed: 1. M1 is much wider than M2 and is more liquid. 2. A simple loan that pays $2000 after 3 years is worth $1500 today if the interest rate was 8.5%. 3. A bond that pays $60 a year for three years whose face value is $500 has a price of $680 today if the interest rate is 3.5%. 4. A perpetuity that pays $150 every year and purchased to day for $6000 has a yield to maturity equals to 5%. 5. In the bond market if the there is an expansion in the economy, the supply for bonds will increase and the interest rate will decline. 6. In the bonds market if expected inflation increases then the demand of bonds will increase and the interest rate will increase. 7. The most important source for finance funds for corporations is its borrowings from owners. 8. Financial intermediaries are the best solution for the problem of adverse selection. 9. In the reserves market the Demand curve is horizontal .أفقي)) 10. In the reserves market a securities purchase by the Fed increases the Supply and raises the federal fund rate all the time. 11. The OMO is the most important tool used by the Fed due to its four advantages.