If the equilibrium price of bonds increases, what happens to the associated interest rate? A.Interest rate increases B.Interest rate declines C.Interest rate does not change

In a bond market, the price and interest rate are inversely related.

Answered: If the equilibrium price of bonds…

Business

Economics

If the equilibrium price of bonds increases, what happens to the associated interest rate?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter17: Financial Markets

Section: Chapter Questions

Problem 38P: Suppose Ford Motor Company issues a five year bond with a face value of 5,000 that pays an annual...

See similar textbooks

Related questions

Q: If interest rates in the economy rise over time this is: O Good for lenders but bad for borrowers…

A: If the interest rate is rising over time, it is good for lenders but bad for borrowers.

Q: (M/P) d=Y-20r. M = 600. P = 2. 1. What are the equilibrium level of income and the equilibrium…

A: The equilibrium level of income is the point at which a business is able to sell all of the goods it…

Q: What will happen in the bond market if the government imposes a limit on the amount of daily…

A: If the government imposes a limit on the quantity of daily transactions within the bond market, then…

Q: Due to recent pandemic in country A, the economic activity in this country has decreased…

A: Answer a) When the government of Canada borrows $35 billion then we have to show its impact on the…

Q: The IS relation means that the output increase leads to an interest rate decrease. TRUE or FALSE?…

A: IS curve denotes the relationship between interest rate and output level in the economy.

Q: If long-term interest rates are 8% and short-term interest rates are 3%, the market expects that:…

A: Short-term interest rates are the interests on short-term financial instruments (assuming other…

Q: True/False and Explain When nominal interest rates are zero, the central bank can still lower them…

A: There are mainly two different types of interest rates in the economy and they are the nominal…

Q: Referring to the two figures, which of the following sequences (numbered arrows) shows the logic of…

A: Interest rate is usually controlled by the central bank of a country. The central bank fixes the…

Q: Explain the concept of interest rates in terms of prime, money markets, repo and borrowing rates

A: Money market is the market in which trading of financial instruments with high liquidity takes…

Q: Assume you are an economist at Reserve Bank of Vanuatu. The government has been considering tax…

A: Change in tax influences the interest rate, savings and volume of investment. That is, if government…

Q: The following equations describe an economy. Y = C + I + G. C = 120 + 0.5( Y - T ). I = 100 -…

A: The IS-LM model is used to determine the equilibrium interest rate and income level in the economy.…

Q: Assume the following model of the economy: Y = C + I + G C = 120 + 0.5(Y - T) I = 100 - 10r G =…

A: IS curve is given by the equation: Y = C + I + G LM curve is given by the equation: MPd = MPs =MP To…

Q: explains interest rate and its determinants. Please explain is 3 paragraph

A: The policy which includes changes in the interest rate and open market operations to stabilize the…

Q: 1. When interest rate i increases, equilibrium output Y will _____. A. Increase B. Decrease C.…

A: Whenever interest rates are raised, investment will be discouraged due to the greater opportunity…

Q: . Given: C = 700 + .80 (1- t)Y, t=0.25 I = 210 -75i; G= 1000; TR=100 L= 0.20Y- 40i ; M/P = 800…

A: C = 700 + .80 (1- t)Y t=0.25 I = 210 -75i G= 1000; TR=100 L= 0.20Y- 40i M/P = 800 C =…

Q: he eco

A: Government expenditure or spending tends to includes all investment, government consumption and also…

Q: d) How does the elasticity of demand for loanable funds affect the size of these changes? Hints:…

A: Answer d) The elasticity of demand of loanable funds will change the rate of interest. We can show…

Q: What does the Fisher Effect tell us about the bond and loanable funds markets?

A: In classical economics, the equilibrium interest rate in the economy is determined in the loanable…

Q: Explain, with the aid of a graph, the effect of an interest rate decrease on the (7) money market…

A: Money market consists of demand for money and money supply. Intersection of these two curves gives…

Q: true/false explain 4. When nominal interest rates are zero, the central bank can still lower them…

A: The nominal interest is the interest rate which does not take inflation into account in the economy.…

Q: How can market forces of supply and demand affect interest rates and the economy

A: The demand and supply affect interest rates in the money market. The money market is the market that…

Q: Discuss any three factors that determine Interest Rates?

A: Interest rate is the rate at which the money is traded . Money is like a normal goods an interest…

Q: Some forecasters see a bright upcoming year as tax cuts will take effect and interest rates remain…

A: The economies around the globe are involved in activities in order to enhance the level of their…

Q: The relationship between interest rate and Money supply is ____ Select one: a. Positive b.…

A: The money supply refers to all of a country's currency and other liquid assets on the measurement…

Q: An increase in interest rate always lowers the net interest income (NII) of a bank. Is this…

A: Net interest income (NII) refers to income earned by the banks that is determined by the difference…

Q: Heavy buying of the 3-month Treasury bill, considered one of the safest investments aroun a…

A: Government bonds or debt securities with a maturity of less than a year are considered short-term…

Q: 3. The money supply, the loanable funds market, and interest rates Changes in the money supply…

A: In financial matters, the loanable assets regulation is a hypothesis of the market loan cost. As…

Q: QUESTION 4 According to the IS curve, when interest rate i increases, equilibrium output Y will…

A: IS curve is downward sloping curve which shows the interest rate on the y axis and real income and…

Q: Who benefits from an increase in interest rates? O people who are borrowing money O no one O people…

A: Interest rate: The interest rate is the rate or the proportion of an amount the lender or bank…

Q: 8. Using an appropriate diagram, explain how the equilibrium interest rate is determined in the…

A: The equilibrium interest rate is considered as a rate at a point where the quantity of money…

Q: If the investment curve was horizontal and the prices increased? Explain what will happen to…

A: The AD curve shows an inverse relationship between the level of national income and the aggregate…

Q: When the interest rate falls, how does the opportunity cost of holding money and the quantity of…

A: Interest rates are defined as the form of reward given to the investors for investing their money…

Q: Why does longer-term bonds fluctuate more when interest rate change, than does shorter-term bonds

A: An investor's debt to a borrower is represented by a bond, which is a fixed-income investment. A…

Q: The sellers (or lenders) in financial markets are a) not concerned with the interest rate in the…

A: A financial market is the place for the people to act as a lender or borrow, according to their…

Q: Several factors may influence interest rates for individual securities in an economy like the United…

A: Introduction There are many factors influencing the interest rate for individual securities. We all…

Q: Bond Prices and Interest Question Economists argue that bond prices and interest rates are inversely…

A: 1) Interest Income = 1000 * 10% = 100 Dollars

Q: Identify the effect of recession in the economy on either demand or supply curve and the…

A: What is a recession? Recession is a term utilized to signify a slowdown in general economic…

Q: In which of the following situations would you prefer to be the lender? 1) Expected inflation rate…

A: please find the answer below.

Question

If the equilibrium price of bonds increases, what happens to the associated interest rate?

	A.	Interest rate increases
	B.	Interest rate declines
	C.	Interest rate does not change

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Suppose Ford Motor Company issues a five year bond with a face value of 5,000 that pays an annual coupon payment of $150. What is the interest rate Ford is paying on the borrowed funds? Suppose the market interest rate rises from 3 to 4 a year after Ford issues the bonds. Will the value of the bond increase or decrease?
The relationship between the price of the bond and the market rate of interest rate? *a. Inversely relatedb. Directly relatedc. Neither are relatedd. Not relatede. None of the choices
Q. Differentiate the Expected real interest rate to Realized real interest rates? Give examples.
Q4 a) When the demand of output decides how much to produce which type of demand prevails in the economy? B) Why investment is negatively related to interest rate?c) Give the equilibrium in the market for loans?
The only kind of interest rate that can be used in the interest formulas is: (EXPLAIN YOUR ANSWER) A simple rate A nominal rate An effective rate Either (A) or (C)
Assume the following model of the economy: Y = C + I + G C = 120 + 0.5(Y - T) I = 100 - 10r G = 50 T = 40 Md = Y - 20 r Ms = 600 P = 2 What are the equilibrium level of income and equilibrium interest rate?
In which of the following situations is it most advantageous to be saving? Select one: A. The real interest rate is 13 percent and the expected inflation rate is 15 percent. B. The real interest rate is 4 percent and the expected inflation rate is 4 percent. C. The real interest rate is 1 percent and the expected inflation rate is 2 percent. D. The real interest rate is 11 percent and the expected inflation rate is 9 percent. E. The real interest rate is 7 percent and the expected inflation rate is 6 percent.
explain using a two period indifference curve how an individual would respond to an increase in interest rate by increasing or decreasing saving, explain using graphs
A. Given: C = 700 + .80 (1- t)Y, t=0.25 I = 210 -75i; G= 1000; TR=100 L= 0.20Y- 40i ; M/P = 800 Compute: 1. The equilibrium income and the equilibrium interest rate
Assume you are an economist at Reserve Bank of Vanuatu. The government has been considering tax reforms to modernize the economy. Using relevant diagram(s) show and explain how a change in the income tax is likely to influence real interest rate, savings and investment.
Suppose a handbill publisher can buy a new duplicating machine for $500 and the duplicator has a 1-year life. The machine is expected to contribute $550 to the year’s net revenue. What is the expected rate of return? If the real interest rate at which funds can be borrowed to purchase the machine is 8 percent, will the publisher choose to invest in the machine? Explain.
Recently, the economies of China and India have begun to grow very rapidly. This increases their citizens’ income and wealth. In turn, these citizens increase their savings in their country and also in the United States. a. When foreign savings enter the U.s. loanable funds market, which curve is affected—supply or demand? How is this curve affected? b. How would you graph the U.s. loanable funds market both before and after the increase in foreign savings? c. How does the change in foreign savings affect both investment and future output in the United states?