Starting from an equilibrium point, explain and illustrate with the help of a graph of bond supply and demand, the impact of each of the following on the bond’s quantity, price, and yield. A decrease in the expected future interest rate.A decrease in expected inflation with a stronger response on the issuers rather than buyers of bonds.The government decides to eliminate tax incentives on investments and to increase education spending with the additional funds. This change does not affect the government financing needs.Prospects of economic growth impact more bond issuers than bond buyers.

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Answered: Starting from an equilibrium point,…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 12CQ

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Starting from an equilibrium point, explain and illustrate with the help of a graph of bond supply and demand, the impact of each of the following on the bond’s quantity, price, and yield.

A decrease in the expected future interest rate.
A decrease in expected inflation with a stronger response on the issuers rather than buyers of bonds.
The government decides to eliminate tax incentives on investments and to increase education spending with the additional funds. This change does not affect the government financing needs.
Prospects of economic growth impact more bond issuers than bond buyers.

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