The demand curve and supply curve for one-year discount bonds with a face value of $1,030 are represented by the following equations: Bd: Price = -0.8Quantity + 1,160 BS: Price Quantity + 690 Suppose that, as a result of monetary policy actions, the Federal Reserve sells 110 bonds that it holds. Assume that bond demand and money demand are held constant. Which of the following statements is true? OA. If the Fed decreases the supply of bonds in the market by 110, at any given price, the bond supply equation will become Price = Quantity + 840. OB. If the Fed increases the supply of bonds in the market by 110, at any given price, the bond supply equation will become Price = Quantity + 800. C. If the Fed increases the supply of bonds in the market by 110, at any given price, the bond supply equation will become Price = Quantity + 580. OD. If the Fed decreases the supply of bonds in the market by 110, at any given price, the bond supply equation will become Price = Quantity + 780. Calculate the effect on the equilibrium interest rate in this market, as a result of the Federal Reserve action. to %. (Round your intermediate calculations to the nearest whole number. Round your fina The expected interest rate on a one-year discount bond will answer to two decimal places.)
The demand curve and supply curve for one-year discount bonds with a face value of $1,030 are represented by the following equations: Bd: Price = -0.8Quantity + 1,160 BS: Price Quantity + 690 Suppose that, as a result of monetary policy actions, the Federal Reserve sells 110 bonds that it holds. Assume that bond demand and money demand are held constant. Which of the following statements is true? OA. If the Fed decreases the supply of bonds in the market by 110, at any given price, the bond supply equation will become Price = Quantity + 840. OB. If the Fed increases the supply of bonds in the market by 110, at any given price, the bond supply equation will become Price = Quantity + 800. C. If the Fed increases the supply of bonds in the market by 110, at any given price, the bond supply equation will become Price = Quantity + 580. OD. If the Fed decreases the supply of bonds in the market by 110, at any given price, the bond supply equation will become Price = Quantity + 780. Calculate the effect on the equilibrium interest rate in this market, as a result of the Federal Reserve action. to %. (Round your intermediate calculations to the nearest whole number. Round your fina The expected interest rate on a one-year discount bond will answer to two decimal places.)
Chapter15: Money Creation
Section: Chapter Questions
Problem 17SQ
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Transcribed Image Text:The demand curve and supply curve for one-year discount bonds with a face value of $1,030 are represented by the following equations:
Price = -0.8Quantity + 1,160
Bd.
BS:
Price =
Quantity + 690
Suppose that, as a result of monetary policy actions, the Federal Reserve sells 110 bonds that it holds. Assume that bond demand and money demand are held
constant. Which of the following statements is true?
A. If the Fed decreases the supply of bonds in the market by 110, at any given price, the bond supply equation will become Price = Quantity + 840.
B. If the Fed increases the supply of bonds in the market by 110, at any given price, the bond supply equation will become Price = Quantity + 800.
C. If the Fed increases the supply of bonds in the market by 110, at any given price, the bond supply equation will become Price = Quantity + 580.
D. If the Fed decreases the supply of bonds in the market by 110, at any given price, the bond supply equation will become Price = Quantity + 780.
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 will
answer to two decimal places.)
to %. (Round your intermediate calculations to the nearest whole number. Round your final
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