The demand curve and supply curve for one-year discount bonds with a face value of $1,050 are representedby the following equations:Bd: Price = -0.8 * Quantity + 1160Bs: Price = Quantity + 720Suppose that, as a result of monetary policy actions, theFederal Reserve sells 90 bonds that it holds. Assume thatbond demand and money demand are held constant.a. How does the Federal Reserve policy affect the bondsupply equation?b. Calculate the effect on the equilibrium interest rate in this market, as a result of the FederalReserve action.
The demand curve and supply curve for one-year discount bonds with a face value of $1,050 are representedby the following equations:Bd: Price = -0.8 * Quantity + 1160Bs: Price = Quantity + 720Suppose that, as a result of monetary policy actions, theFederal Reserve sells 90 bonds that it holds. Assume thatbond demand and money demand are held constant.a. How does the Federal Reserve policy affect the bondsupply equation?b. Calculate the effect on the equilibrium interest rate in this market, as a result of the FederalReserve action.
Chapter25: Money, Banking, And The Federal Reserve System
Section: Chapter Questions
Problem 13P
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The
by the following equations:
Bd
:
Bs
: Price = Quantity + 720
Suppose that, as a result of
Federal Reserve sells 90 bonds that it holds. Assume that
bond demand and money 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.
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