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Theory of Asset Demand

Chapter 5: Only answers questions #1,#10,#12,#16
Chapter 8: Only answers questions #1,#5,#14,#15

Respond to the: The Behavior of Interest Rates and Economic Anaylsis of Financial

Respond to the Extra Credit Question: What do you think is the most important part of the Theory of Asset Demand? Why.

All questions that are requiring a two part answer please do so.

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#1 - b

#10 - Interest rate volatility drives the gold market. This implies that changes in yields are actions, while price changes in the gold market are reactions to interest rates. Without gold reserves to limit currency creation, banks can painlessly create currency upon demand and without limit via their loans checks. The current monetary system's debt based credit cycle itself. It is important to understand that the current monetary system's use of debt for bank reserves creates financial incentives and consequences for creditor and debtors that evolve as the credit cycle matures

#12 - Using estimates from the 1992 Treasury report on corporate tax integration, improved efficiency of the capital stock should add about another 0.25 percent each year to output going forward. This extra 0.5 percent of output going forward dwarfs the interest rate effect of deficits in this range. (Reference - US Treasury Report 1992). The 1980s, economists began to examine the facts. [2] What they found, as Robert Barro reported in his 1987 Macroeconomics textbook, is that "this belief does not have evidence to support it." A 1985 analysis by Paul Evans found that historical periods of high budget deficits in the United States did not coincide with high interest rates. A 1993 survey of academic studies by John Seater concluded, "They are inconsistent with the traditional view that government debt is positively related to interest rates." (Reference - Reynolds - Cato Institute http://www.cato.org/pubs/tbb/tbb-0202.html)

Confronted with this evidence, some began to say that it was not nominal interest rates that were driven up by deficits but real interest rates. But the only way deficits could raise real rates without raising nominal rates would be if deficits ...

Solution Summary

The solution responds to the Behavior of Interest Rates and Economic Analysis of Financials and also the question, What do you think is the most important part of the Theory of Asset Demand and Why?

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