1. Which of the following statements is CORRECT, other things held constant?

a. If expected inflation increases, interest rates are likely to increase.

b. Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities.

c. If companies have fewer good investment opportunities, interest rates are likely to increase.

d. If individuals increase their savings rate, interest rates are likely to increase.

e. Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills.

2. The four most fundamental factors that affect the cost of money are (1) production opportunities, (2) time preferences for consumption, (3) risk, and (4) the skill level of the economy's labor force.

True

False