The answer choices include,( increase, decrease)

a. What effect would each of the following events likely have on the level of nominal Interest rates? 1. Households dramatically increase their savings rate, This action will o the supply of money; therefore, interest rates will 2. Corporations decrease their demand for funds following a decrease in investment opportunities. This action will cause interest rates to 3. The government runs a larger-than-expected budget deficit. The larger the federal deficit, other things held constant, the the level of interest rates. 4. There is an increase in expected inflation This expectation will cause interest rates to b. Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, AA-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years, 4% for the following 4 years, and 5% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.01(t-1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Spread - DRP + LP U.S. Treasury AAA corporate AA corporate A corporate Rate 0.83% 0.93 1.35 1.73 0.10% 0.52 0.90 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: % 7-year Corporate yield: %