T'he market expects the Fed to hike interest rates. What is the effect on long-term bonds. Bond demand increases Bond demand decreases Bond supply increases Bond supply decreases Interest rates increase Interest rates decrease

T'he market expects the Fed to hike interest rates. What is the effect on long-term bonds. Bond demand increases Bond demand decreases Bond supply increases Bond supply decreases Interest rates increase Interest rates decrease

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter20: Monetary Policy

Section: Chapter Questions

Problem 7SQ

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Question

The market expects the Fed to hike interest rates. What is the effect on long-term
bonds.
Bond demand increases
Bond demand decreases
Bond supply increases
Bond supply decreases
Interest rates increase
Interest rates decrease
The price of Bitcoin becomes less volatile.
Bond demand increases
Bond demand decreases
Bond supply increases
Bond supply decreases
Interest rates increase
Interest rates decrease

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Suppose the Fed announces that it is raising its target interest rate by 75 basis points, or 0.75 percentage point. To do this, the Fed will use open-market operations to ? (increase/decrease) the ? (demand for/supply of) money by buying bonds from ? (buying bonds from/selling bonds to) the public.
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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?