Question

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Karine needs to borrow money to become a software engineer. Suppose that compensation of software engineers is expected to decres.Assming nothing else changes, this means that if Karine borrows now, her cost of borrowing money is expected to ▼ due to the following factor: Decreasing benefits of becoming a software engineer. A greater risk associated with the career as a software engineer. Rising compensation of software engineers stimulates inflation. increase decrease Which of the following events could increase the cost of money? Check all that apply. Inflation declines Inflation rises The federal deficit increases 囗 The Federal Reserve purchases Treasury securities held by banks

Answer 1

1:

Increase

Due to Decreasing benefits of becoming a software engineer

(Using FV= PV*(1+r)^n, if the value of FV,future value decreases, the value of r will increase)

2: Inflation rises

Higher inflation increases demand for money thus increasing its cost.

When Fed purchases securities, it increases the money supply thereby reducing the interest rates. Lesser inflation will reduce demand for money and again reduce the cost of money. Federal deficit will not directly impact the interest rates.