1. Discuss the effects on stock and bond markets if banks no longer trust lending...
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1. Discuss the effects on stock and bond markets if banks no longer trust lending to each other money. Apply the liquidity premium to the discussion and its effects on interest rates, bond yields, and prices of stocks (in relation to discount rates) and bond prices. Is the difference possibly the same for short term bonds and long term bonds and how would the different types of yield curves play a role in different answer? Would short term rates rise or fall more than long term rates? How would such a situation effect the general economy as a whole
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