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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 increase to 10.87 %. (Round your

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 increase to 10.87 %. (Round your

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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: BS: Price = -0.7Quantity + 1,120 Price = Quantity + 700 Suppose that, as a result of monetary policy actions, the Federal Reserve sells 90 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 increases the supply of bonds in the market by 90, at any given price, the bond supply equation will become Price = Quantity + 610. B. If the Fed decreases the supply of bonds in the market by 90, at any given price, the bond supply equation will become Price = Quantity + 830. C. If the Fed decreases the supply of bonds in the market by 90, at any given price, the bond supply equation will become Price = Quantity + 770. D. If the Fed increases the supply of bonds in the market by 90, at any given price, the bond supply equation will become Price = Quantity + 790. 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 increase to 10.87%. (Round your intermediate calculations to the nearest whole number. Round your final answer to two decimal places.)
Transcribed Image Text: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: BS: Price = -0.7Quantity + 1,120 Price = Quantity + 700 Suppose that, as a result of monetary policy actions, the Federal Reserve sells 90 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 increases the supply of bonds in the market by 90, at any given price, the bond supply equation will become Price = Quantity + 610. B. If the Fed decreases the supply of bonds in the market by 90, at any given price, the bond supply equation will become Price = Quantity + 830. C. If the Fed decreases the supply of bonds in the market by 90, at any given price, the bond supply equation will become Price = Quantity + 770. D. If the Fed increases the supply of bonds in the market by 90, at any given price, the bond supply equation will become Price = Quantity + 790. 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 increase to 10.87%. (Round your intermediate calculations to the nearest whole number. Round your final answer to two decimal places.)
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