The bond market is depicted in the graph to the right. a. The bond demand curve is downward sloping because A. lower bond prices translate into higher interest rates and returns. ● B. as the interest rate decreases people are willing to buy more bonds. ● C. the government sells more bonds at lower interest rates. ● D. the Fed's decision to buy or sell bonds is independent of the interest rate. b. Suppose the Fed decides to buy bonds. 1.) Using the line drawing tool, depict changes in the bond market. Properly label your line. 2.) Using the point drawing tool, label the new equilibrium point 'E₂'. Carefully follow the instructions above, and only draw the required objects. Price of Bonds 1000- 900- 800- 700- 600- 500- 400- 300- 200- 100- 0- 0 5 So Eo D 10 15 20 25 30 35 40 45 Quantity of Bonds 50 G G C

The bond market is depicted in the graph to the right. a. The bond demand curve is downward sloping because A. lower bond prices translate into higher interest rates and returns. ● B. as the interest rate decreases people are willing to buy more bonds. ● C. the government sells more bonds at lower interest rates. ● D. the Fed's decision to buy or sell bonds is independent of the interest rate. b. Suppose the Fed decides to buy bonds. 1.) Using the line drawing tool, depict changes in the bond market. Properly label your line. 2.) Using the point drawing tool, label the new equilibrium point 'E₂'. Carefully follow the instructions above, and only draw the required objects. Price of Bonds 1000- 900- 800- 700- 600- 500- 400- 300- 200- 100- 0- 0 5 So Eo D 10 15 20 25 30 35 40 45 Quantity of Bonds 50 G G C

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter30: Government Budgets And Fiscal Policy

Section: Chapter Questions

Problem 48CTQ: If the government gives a 300 tax cut to everyone in the country, explain the mechanism by which...

See similar textbooks

Similar questions

4 In the economy there is a decrease in profitable business opportunities for firms. As a result, in the bond market the _____ curve for bonds should shift and the new equilibrium price will be _____. demand; higher demand; lower supply; higher supply; lower
If the government gives a 300 tax cut to everyone in the country, explain the mechanism by which this will cause interest rates to rise.
1. Housing bubble: In the early 2000s, there was a housing bubble in the United States. Banks were issuing mortgages to people who could not afford to pay them back. This led to a housing market boom, with housing prices skyrocketing. Explain with a graph please.
Stock market becomes a little more volatile and households decide to sell their stocks and use the money to lend to corporation. As a result of this additional lending, Group of answer choices 1. Supply of bonds will increase, price of bonds will increase, and interest rate will decrease. 2. Demand for bonds will increase, price of bonds will decrease, and interest rate will decrease. 3. Supply of bonds will increase, price of bonds will increase, and interest rate will increase. 4. Demand for bonds will increase, price of bonds will decrease, and interest rate will increase. 5. Supply of bonds will increase, price of bonds will decrease, and interest rate will increase. 6. Demand for bonds will increase, price of bonds will increase, and interest rate will increase. 7. Supply of bonds will increase, price of bonds will decrease, and interest rate will decrease. 8. Demand for bonds will increase, price of bonds will increase, and interest rate will decrease.
3. According to an article on the junk bond market in Europe published in the Economist in 2016, "The spread (the interest premium over government borrowing rates) paid by junk-bond issuers has risen by nearly three-and-a-half percentage points since March last year." (a) How can you tell whether a newly issued bond is a junk bond? (b) Why would the spread between government bonds and junk bonds have been rising? (c) Does this increase in the spread make junk bonds a better or a worse investment compared with buying government-issued bonds? Briefly explain.
B. induces households to increase consumption. C. increases aggregate demand for goods and services. D. All of the above are correct. How would the Fed use open market operations (OMO) to raise interest rates? A. The Fed sells bonds to banks. B. The Fed buys bonds from banks. C. The Fed reduces the discount rate. D. The Fed sells gold certificates.
True or False: With a discount bond, the return on a bond is equal to the rate of capital gain. A. True: A discount bond has no coupon payments so the return on the bond is equal to the rate of capital gain. B. False: Bond returns can never equal the rate of capital gain; there must be a capital loss or gain indicated. C. True: A discount bond pays fixed interest payments every year so the return is equal to the rate of capital gain. D. There is no way to determine this without the knowing the coupon amount and interest rate.
Suppose the U.S. Treasury issued $50 billion of short-term securities and sold them to the public. Other things held constant, what would be the most likely effect on short-term securities' prices and interest rates? a. Prices and interest rates would both rise. b. Prices would rise and interest rates would decline. c. Prices and interest rates would both decline. d. Prices would decline and interest rates would rise. e. There is no reason to expect a change in either prices or interest rates.
What happens to the equilibrium price of bonds if the supply of bonds shifts leftward? A. Bond price declines B. Bond price increases C. Bond price does not change
8. Using policy to stabilize the economy The government has the ability to influence the level of output in the short run using monetary and fiscal policy. There is some disagreement as to whether the government should attempt to stabilize the economy. Which of the following are arguments in favor of active stabilization policy by the government? Check all that apply. changes in government purchases and taxation must be passed by both houses of Congress and signed by the president. The Fed can effectively respond to excessive pessimism by expanding the money supply and lowering interest rates. Shifts in aggregate demand are often the result of waves of pessimism or optimism among consumers and businesses. 10 The current tax system acts as an automatic stabilizer. Which of the following are examples of automatic stabilizers? Check all that apply. Corporate income taxes Personal income taxes The federal funds rate
9. Suppose the price of a $100,000 bond falls from $98,000 to $97,000. What is the interest rate on a one-year $100,000 bond that sells for $98,000? b. What is the interest rate on a one-year $100,000 bond that sells for $97,000? a. 321 words English (United States) lili
Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy. What could it do? a. buy bond to raise the interest rate b. buy bonds to lower the interest rate INCORRECT c. sell bonds to raise the interest rate INCORRECT d. sell bonds to lower the interest rate I thought the answer was B. BUT My results tell me option B. is incorrect.... Another chegg question shows option C. as incorrect as well... Please help?