30-Year Treasury Yield Hits Highest Level Since 2007

Answer the following questions to check your understanding of the story.

How does a higher expected inflation rate influence short-term and long-term interest rates?

A higher expected inflation rate _______________.

a) doesn’t change the short-term nominal interest rate and raises the long-term nominal interest rate

b) raises the short-term nominal interest rate and doesn’t change the long-term nominal interest rate

c) raises the short-term and long-term nominal interest rates

d) doesn’t change the short-term or long-term nominal interest rates

Why does a higher expected inflation rate change the long-term interest rate?

A higher expected inflation rate ___________ and the long-term interest rate rises.

a) decreases the demand for long-term bonds, which lowers their price

b) increases the demand for long-term bonds, which raises their price

c) decreases the supply of long-term bonds, which raises their price

d) increases the supply of long-term bonds, which lowers their price

Does the government fiscal deficit and corporate AI investment influence the real interest rate?

a) The real interest rate rises only because the inflation rate rises, not because of a government fiscal deficit or corporate AI investment.

b) The supply of loanable funds decreases, and the real interest rate rises.

c) The demand for loanable funds increases by the same amount as the supply of loanable funds increases, and the real interest rate is unchanged.

d) The demand for loanable funds increases, and the real interest rate rises.

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