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?
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Bd:
Bs: Price = Quantity + 720
How does the Reserve Bank policy affect the bond supply equation?
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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: 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 actionInflationary 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.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.
- Below you will find the Demand and Supply Curves for $250,000 bonds that mature in 18 years: Qd = 400,000 – 2(P) Qs = 3(P) – 100,000 If the Fed wants to move the interest rate to 5%, what would the bond price have to change to in order to achieve this?Inflationary expectations in the economy increase rapidly, evoking a much stronger response from issuers of bonds than borrowers 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 current Fed Funds rate band is 0.0%/year - 0.25%/year. If the Federal reserve wanted to set their policy rate to 0.25%/year using a 3-day reverse repo transaction, how much would a commercial bank pay to buy back $43 million worth of bonds?
- A recent newspaper article discussed the implications of investors' fears of a larger-than-expected budget deficit in Italy. In one well-labeled graph of the bond market for Italy, show how the following items respond and provide an intuitive explanation for each. bond demand bond supply equilibrium price equilibrium interest rateIf it gets easier to use gold to pay in stores, then: Bond demand will increase. Bond demand will decrease. Bond supply will increase. Bond supply will decrease. The bond demand curve slopes ____ because a lower price level will _____ up, reduce expected return on holding bonds up, increase the supply of bonds down, increase the supply of bonds down, reduce expected return on holding bonds up, increase expected return on holding bonds down, increase expected return on holding bondsExplain how a Reserve Bank policy can affect the bond supply equation.
- Show graphically the effect of a sudden increase in the volatility of gold prices on interest rates in the bond 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?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
