Figure 6 Response to a Business Cycle Expansion Price of Bonds, B Step 1. A business cycle expansion shifts the bond supply curve B rightward. Step 2. and shifts the bond demand curve rightward, but by a lesser amount... Step 3. so the price of bonds falls and the equilbrium interest rate rises. B Quantity of Bonds, B

Figure 6 Response to a Business Cycle Expansion Price of Bonds, B Step 1. A business cycle expansion shifts the bond supply curve B rightward. Step 2. and shifts the bond demand curve rightward, but by a lesser amount... Step 3. so the price of bonds falls and the equilbrium interest rate rises. B Quantity of Bonds, B

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter13: Monetary Policy: Conventional And Unconventional

Section: Chapter Questions

Problem 7DQ

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3. think through a couple of other such shifters using the bond supply/demand picture. a. Suppose that households learn that they are entering a recession. This means that they need to prepare for a higher risk of being unemployed for a long period of time. How will this possibility affect their demand for government bonds? Explain your answer. What will happen to the equilibrium interest rate in the government bond market? b. Suppose that banks are told that they must be backed by a lot more equity capital, unless their assets consist of government bonds. How will this affect their demand for government bonds? What will happen to the equilibrium interest rate in the government bond market?
3. The demand curve and supply curve for one-year discount bonds witha face value of $1,050 are represented by the following equations:Bd: P rice = −0.8 × Quantity + 1160Bs: P rice = Quantity + 720Suppose that, as a result of monetary policy actions, the FederalReserve sells 90 bonds that it holds. Assume that bond demand andmoney demand are held constant.a. How does the Federal Reserve policy affect the bond supply equation?b. Calculate the effect on the equilibrium interest rate in this market,as a result of the Federal Reserve action
Please answer the correct answer jus need B Don't answer by pen paper please ASAP. Use the graphical bond market model to answer the following questions. In each case, support your answer with a figure, and explain your answer. Label each figure clearly. a. What is the effect of an increase in wealth on interest rates? b. What is the effect of a decrease in expected inflation on interest rates? c. Why does an expectation of an upcoming interest rate hike by the Federal Reserve cause bond prices to fall? Just need B.
The demand curve and supply curve for one-year discount bonds with a face value of $1,050 are representedby the following equations:Bd: Price = -0.8 * Quantity + 1160Bs: Price = Quantity + 720Suppose that, as a result of monetary policy actions, theFederal Reserve sells 90 bonds that it holds. Assume thatbond demand and money demand are held constant.a. How does the Federal Reserve policy affect the bondsupply equation?b. Calculate the effect on the equilibrium interest rate in this market, as a result of the FederalReserve action.
An important way in which the Federal Reservedecreases the money supply is by selling bonds to thepublic. Using a supply and demand analysis for bonds,show what effect this action has on interest rates. Isyour answer consistent with what you would expect tofind with the liquidity preference framework?
Assume that the real risk-free rate is r* = 2% and the average expected inflation rate is 3% for each future year. The DRP and LP for Bond X are each 1%, and the applicable MRP is 2%. What is Bond X’s interest rate? Is Bond X (1) a Treasury bond or a corporate bond and (2) more likely to have a 3-month or a 20-year maturity? SHOW WORK AND USE FINANCIAL CALCULATOR
Using both the liquidity preference framework and thesupply and demand for bonds framework, show whyinterest rates are procyclical (rising when the economyis expanding and falling during recessions).
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Explain why when the spread between government bonds rate and corporate bond rates of the same maturity widens, it is helpful in predicting a possible recession. (widening of the spread just means that the difference between corporate and government bonds increases)
Suppose a given country experienced low and stableinflation rates for quite some time, but then inflation picked up and over the past decade had beenrelatively high and quite unpredictable. Explain howthis new inflationary environment would affect thedemand for money according to portfolio theories ofmoney demand. What would happen if the governmentdecided to issue inflation-protected securities?
A9. Assuming that the expectations theory is the correct theory of the term structure, calculate the interest rates in the term structure for maturities of one to five years, and plot the resulting yield curves for the following paths of one- year interest rates over the next five years: a. 5%, 6%, 7%, 6%, 5% b. 5%, 4%, 3%, 4%, 5%. c. How would your yield curves change if people preferred shorter-term bonds over longer- term bonds?
In early 2016 as the Bank of Japan began to push policyinterest rates negative, there was a sharp increase insales for homes in Japan. Why might this be, and whatdoes it mean for the effectiveness of negative interestrate policy?