Assignment

Answer each question separately.

1. Why is the interest rate on a credit card usually higher than the interest rate on an automobile loan?

2. Why is the interest rate on a security sold by a city government usually less than the interest rate on a security sold by a corporation if both have comparable default risk?

3. During recessions, do expected real interest rates increase or decrease? Explain why. What are the major forces acting on expected real interest rates in recessions?

4. Describe two ways the government could eliminate the interaction of inflation with the tax system.