Corporate bond interest rates are a good measure of the interest rate facing firms planning investments. Before the financial crisis, this rate was about 2% higher than the fed funds rate. At the peak of the crisis in October 2008, the Baa rated bond rate was almost 9 percent higher than the fed funds rate. a. Go to the FRED database and look up the series BAA10Y and extend the data range to "max". Compare what you see to the TED spread TEDRATE for the same range. Find the definitions for each of these interest rate spreads. Why do you think these two measures are often used to discuss financial conditions in the macroeconomics?
b. Suppose the economy begins in steady state, and there is a shock to the interest spread f. Use the IS-MP and AS/AD diagrams to show and explain how the economy reacts if the Fed follows the simple monetary rule does not change its inflation target. c. Continuing from part b), explain how the economy adjusts back towards the steady state when the shock to f lasts for one period.

Suppose that a major city’s main thoroughfare, which is also an interstate highway, will be completely closed to traffic for two years, from january 2014 to december 2015, for reconstruction at a cost of $535 million. if the construction company were to keep the highway open for traffic during construction, the highway reconstruction project would take much longer and be more expensive. suppose that construction would take four years if the highway were kept open, at a total cost of $800 million. the state department of transportation had to make its decision in 2014, one year before the start of construction (so that the first payment was one year away). so the department of transportation had the following choices: (i) close the highway during construction, at an annual cost of $267.5 million per year for two years. (ii) keep the highway open during construction, at an annual cost of $200 million per year for four years. now suppose the interest rate is 80%. calculate the present value of the costs incurred under each plan.