1.) Evidence shows that interest rates are procyclical (interest rates rise during economic expansions, and fall during economic contractions). Explain the statement above using either the S & D for Bonds or the S & D for Credit model in your answer, showing (graphically with axes labeled) what happens to interest rates both during an expansion and during a contraction. (10 Points)
2.)Standard economic considerations confront issues of inflation. Explain and show graphically the effect on the S & D for Bonds in a deflationary period. In addition, what is the effect on interest rates and the quantity of bonds.
3))There are four goods produced in an economy by four individuals:
Good Producer
Apples Orchard Owner
Bread Baker
Shoes Cobbler
Hats Hat Maker
If the orchard owner only wants to initially trade for hats and bread, the baker only wants to initially trade for hats and shoes, the cobbler only wants to initially trade for bread and apples and the hat maker only wants to initially trade for apples, will any trade between these four persons take place in a barter economy? If so, explain you answer in terms of the double coincidence of wants and the idea of transaction costs. Also, explain the trades that will take place with two Producers who wants all four goods at the end.