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 actio

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 actio

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

ChapterD: Bond Prices And The Interest Rate

Section: Chapter Questions

Problem 1QP

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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: Price = −0.8 * Quantity + 1160 Bs: Price = Quantity + 720 How does the Reserve Bank policy affect the bond supply equation?
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.
During the economic expanisio, bond demand curve shifts to the _____ and bond supply curve shifts to the _____. If the supply curve shifts more than the demand curve does, the equilibrium interest rate______. right or left increase or decrease
Inflationary expectations in the economy increase rapidly, evoking a much stronger response from issuers of bonds than lenders of bonds. Using the model of supply and demand for bonds, illustrate and explain the impact of this increase in inflationary expectation on equilibrium bond price and interest rate.
The demand curve and supply curve for one‐year discount bonds with a face value of R1,000 are represented by the following equations (round your responses‐quantity and price to the nearest whole number and the interest rate to two decimal places where applicable). Bd: P = −0.6 * Q + 1200 Bs: P = Q + 800 Where Bd, Bs , P and Q are bond demand, bond supply, price and quantity respectively. Calculate the expected equilibrium price and quantity of bonds in this market and what is the expected interest rate in this market?
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
Over the next three years, the expected path of 1-year interest rates is 1,2, and 1 percent, and the 1-year, 2-year and 3-year term premia are 0, 0.2, and 0.5 percent, respectively. Using the information, the liquidity premium theory of the term structure predicts that the current interest rate on 3-year bond is ____% (round to one decimal place x.x).
: Show graphically the effect of a rise in expected inflation on interest rates in the bond market.
Trace the impact of a sale of government bonds by the Central bank on bond prices, interest rates, investment, aggregate demand, real GDP, and the price level.
An economist has estimated that, near the point of equilibrium, the demand curve and supply curve for 1 year bonds can be estimated using the following equations:Demand: Price = (-0.5)*Quantity + 930Supply: Price = Quantity + 500Assume the face of the bond is $1,000.1. What is the expected equilibrium price and quantity of bonds in this market to 4 decimal places? Price$ Quantity 2. Given your answer to part (a), which is
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 table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond. Year One-Year Bond Rate Multiyear Bond Rate 1 2.00% 2.00% 2 3.00% 3.00% 3 6.00% 5.00% 4 7.00% 7.00% 5 10.00% 8.00% The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places.) l Subscript 11 = (enter your response here)% l Subscript 21 = (enter your response here)% l Subscript 31 = (enter your response here)% l Subscript 41 = (enter your response here)% l Subscript 51 = (enter your response here)%