Question: Assume = .99 for Y1 and = .98 for Y2.Answer the following, with brief explanations: What are the stock prices doing? What are bond prices

Assume = .99 for Y1 and = .98 for Y2.Answer the following, with brief explanations:

  1. What are the stock prices doing?
  2. What are bond prices and yields doing?
  3. Is there an extra interest rate effect on stock prices?
  4. How is the Cd-curve shifting?
  5. Given your equation for the money market, explain how P moves?
  6. Explain in words the basic forces and incentives operating in this part of business cycle.

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