The above graph shows the supply and demand functions for a one-year Treasury discount bond with a face value of F = $1,150. Suppose that currently the Treasury department is not participating in this market. At this point $40 million worth of these bonds are traded in the market by the private sector (firms and households). These bonds have been issued in the past by the U.S. Treasury to finance past budget deficits. The equilibrium interest rate on this bond is 9.52 percent. The government starts running budget deficits and to finance these deficits the U.S. Treasury borrows $60 million through selling new issues of these bonds. Assume that the quantities of bonds issued and sold by the Treasury do not depend on the interest rate. As a result the interest rate increases to 15.00 percent and the private sector borrowing decreases by 1050.00 1000.00 million dollars. millions dollars to

The above graph shows the supply and demand functions for a one-year Treasury discount bond with a face value of F = $1,150. Suppose that currently the Treasury department is not participating in this market. At this point $40 million worth of these bonds are traded in the market by the private sector (firms and households). These bonds have been issued in the past by the U.S. Treasury to finance past budget deficits. The equilibrium interest rate on this bond is 9.52 percent. The government starts running budget deficits and to finance these deficits the U.S. Treasury borrows $60 million through selling new issues of these bonds. Assume that the quantities of bonds issued and sold by the Treasury do not depend on the interest rate. As a result the interest rate increases to 15.00 percent and the private sector borrowing decreases by 1050.00 1000.00 million dollars. millions dollars to

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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