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4. “The bond markets were stunned by the shock of Thursday’s flash second-quarter news that the economy has grown three whole percentage points. Add that discomforting prospect to the other horrifying disclosure – that, at last reading, our money supply had climbed by a mammoth $4.8 billion – and you’ll know why people were heading for the bond market exits.” People are heading for the bond market exits because they suspect that a) inflation will fall b) interest rates will increase c) interest rates will decrease d) something illegal is happening 5. “And many borrowers fear that if American inflation can’t be whipped, American bond markets may evolve into replicas of Europe’s capital markets – surrendering their status as providers of long-term, fixed-cost funds to government and industry.” Long-term bonds will lose favor if inflation is not whipped because a) their prices will become too high b) their prices will become too volatile c) the Fed will refuse to buy or sell them d) the Fed will cut these bonds’ interest rates 6. “The Fed chairman added that the principal misunderstanding about the Fed’s role in the present situation is that the Fed could achieve more or less immediately a low level of interest rates if it wanted to.” Why can’t it achieve immediately a low interest rate if it wanted to? a) because velocity is unstable b) it could – this is just Fed rhetoric c) because it requires lowering inflation which takes time d) because Fed control over the money supply is incomplete

  

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