2 The demand curve and supply curve for one-year discount bonds with a face value of $1,000 are represented by the following equations:Price = -0.6Quantity +1,100B:Price = Quantity + 710Suppose that, as a result of monetary policy actions, the Federal Reserve sells 100 bonds that it holds. Assume that bond demand and money demand are held constant. Which of the following statements is true?O A. If the Fed decreases the supply of bonds in the market by 100, at any given price, the bond supply equation will become Price = Quantity + 790.OB. If the Fed increases the supply of bonds in the market by 100, at any given price, the bond supply equation will become Price = Quantity + 610.O C. If the Fed increases the supply of bonds in the market by 100, at any given price, the bond supply equation will become Price = Quantity + 810.OD.If the Fed decreases the supply of bonds in the market by 100, at any given price, the bond supply equation will become Price = Quantity + 850.Calculate the effect on the equilibrium interest rate in this market, as a result of the Federal Reserve action.The expected interest rate on a one-year discount bond willV to %. (Round your intermediate calculations to the nearest whole number. Round your final answer to two decimal places.)

Given, Bd=Price=-0.6Quantity+1,100Bs=Price=Quantity+710Face Value of bond=1,000Fed Reserve sells…

Answered: The demand curve and supply curve for…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Money Growth And Inflation

Section: Chapter Questions

Problem 1PA

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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
Suppose that wealth is $5trn and can be in money and bonds only. Suppose that yearly income is $1.5trn. Also, suppose that money demand function is given by Md = $Y (.8 - 2i) a. What is the demand for money and the demand for bonds when the interest rate is 2% (i=0.02)? 4% (i=0.04)?
4. Using the same demand curve and supply curve information from question 4, for one-year GASCOHER ‘bonds with a face value of $1.000 B BY: Price = Quantity + 400 Suppose that, a3 a result of monetary policy actions, the Federal Reserve reduces the bonds by 40. Assume that bond demand is constant a How does the Federal Reserve policy affect the bond supply equation? b, Calculate the effect of the Federal Reserve's action on the equilibrium quantity, price and interest rate in this market
Below is the Demand and Supply Curves for $250,000 bonds that mature in 18 years: Qd=400,000 - 2(P) Qs=3(P) - 100,000 1. The current market price of these bonds? 2. The current equilibrium interest rate in that bond market? 3. If the Federal Reserve wished to move the interest rate to 5%, would they need to buy or sell bonds? 4. In order to achieve the Fed's goal in #3, the bond price would need to change to what?
The demand curve and supply curve for one‐year discount bonds with a face value of $1,050 are represented by the following equations: Bd: P = −0.8 * Q + 1160 Bs: P = Q + 720 Suppose that, because of monetary policy actions, the Reserve Bank sells 90 bonds that it holds. Assume that bond demand and money demand are held constant. calculate the effect on the bond price and quantity and equilibrium interest rate in this market, because of the Reserve Bank’s action
The demand curve and supply curve for one‐year discount bonds with a face value of R1,050 are represented by the following equations Bd:Price=−0.8*Quanity + 1160 Bs:Price=Quantity+630 Suppose that, because of monetary policy actions, the Reserve Bank sells 90 bonds that it holds. Assume that bond demand and money demand are held constant. Calculate the effect on the bond price; and quantity; and equilibrium interest rate in this market, because of the Reserve Bank’s action.
Suppose the Fed decided to sell $100 billion worth of government securities in the open market. Assume all payments are directly deposited into or withdrawn from the banking system. What impact would this action have on the economy? Specifically, answer the following questions. Instructions: Enter your responses as a whole number. If the lending capacity or aggregate demand falls be sure to include a negative sign (-) with your answer. b. By how much will the banking system’s lending capacity change if the reserve requirement is 20 percent? d. By how much will aggregate demand initially change if investors change their behavior because of this change in available credit?
Question 1) Explain what will happen to M1 and M2 measures of money supply if an individual moves money from demand deposit account to a small-denomination time deposit. Question 2) Issuing marketable securities is the primary way businesses finance their operations. Trueor false? Explain your answer. If a four-year bond with a $2000 face value has a coupon rate of 2.5%, and the currentmarket interest rate is 4%, what is the market price of the bond? If this bond sold for $1900, is theyield to maturity greater or less than 4%? Why?
A. If the money supply equals 100 and monetary velocity is 5, what is nominal GDP? Explain your answer. B. Suppose monetary velocity is growing at 2 percent, the rate of change of the money supply is 3 percent and real GDP grows at 4 percent. What is the rate of inflation, as measured by the rate of change of the GDP deflator? Explain your answer. C. A zero-coupon bond with a yield to maturity of 4% matures five years from now and will pay out €130. Show how to calculate the current price of this bond. (I don’t need the actual figure for the price)
Refer to table below. Suppose that the Fed had decided to set the U.S. money supply in December 1932 and in December 1933 at the same value as in December 1930. a. Assuming that the values of currency held by the public and the reserve-deposit ratio had remained as given in the table, what should the values of bank reserves be to reach the stated target for the U.S. money supply? Instruction: enter all responses rounded to two decimal places Money Supply Currency held by public Reserve-deposit ratio Actual Bank reserves Needed Bank reserves December 1930 $44.1 billion $3.85 billion 0.075 $3.31 billion $3.31 billion December 1932 $44.1 billion $4.82 billion 0.109 $3.18 billion billion December 1933 $44.1 billion $4.85 billion 0.133 $3.45 billion billion b. In order to accomplish this objective, the Fed would have had to conduct open market purchases to increase bank reserves by $ _______ billion in 1932 and $_________ billion in 1934.
Given the Taylor rule equation below, what should the current Federal Reserve target value be for the fed funds rate (i_ff)? You will need to look up on FRED: 1) current inflation rate, p, and 2) current GDP growth rate, y; you should also assume that: 1) the current real rate of interest, r, is 0.15% (that is, 15/100 of a percent; almost zero!); the targeted inflation rate, p*, is 2%; and the targeted GDP growth rate, y*, is 2.75%
The Federal Reserve has raised the Federal Funds rate by 3.75 percent within the past year. Ifa bank had capital of 10 percent when the Fed began raising rates and has no loans at risk ofdefault, under what circumstances will its capital position be compromised? Please be specific.

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The demand curve and supply curve for one-year discount bonds with a face value of $1,000 are represented by the following equations: Price = -0.6Quantity + 1,100 B°: Price = Quantity + 710