The bond market is depicted in the graph to the right. a. The bond demand curve is downward sloping because A. lower bond prices translate into higher interest rates and returns. ● B. as the interest rate decreases people are willing to buy more bonds. ● C. the government sells more bonds at lower interest rates. ● D. the Fed's decision to buy or sell bonds is independent of the interest rate. b. Suppose the Fed decides to buy bonds. 1.) Using the line drawing tool, depict changes in the bond market. Properly label your line. 2.) Using the point drawing tool, label the new equilibrium point 'E₂'. Carefully follow the instructions above, and only draw the required objects. Price of Bonds 1000- 900- 800- 700- 600- 500- 400- 300- 200- 100- 0- 0 5 So Eo D 10 15 20 25 30 35 40 45 Quantity of Bonds 50 G G C

The bond market is depicted in the graph to the right. a. The bond demand curve is downward sloping because A. lower bond prices translate into higher interest rates and returns. ● B. as the interest rate decreases people are willing to buy more bonds. ● C. the government sells more bonds at lower interest rates. ● D. the Fed's decision to buy or sell bonds is independent of the interest rate. b. Suppose the Fed decides to buy bonds. 1.) Using the line drawing tool, depict changes in the bond market. Properly label your line. 2.) Using the point drawing tool, label the new equilibrium point 'E₂'. Carefully follow the instructions above, and only draw the required objects. Price of Bonds 1000- 900- 800- 700- 600- 500- 400- 300- 200- 100- 0- 0 5 So Eo D 10 15 20 25 30 35 40 45 Quantity of Bonds 50 G G C

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 1CQQ

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Question

The bond market is depicted in the graph to the right.
a. The bond demand curve is downward sloping because
A. lower bond prices translate into higher interest rates and returns.
B. as the interest rate decreases people are willing to buy more bonds.
C. the government sells more bonds at lower interest rates.
D. the Fed's decision to buy or sell bonds is independent of the interest rate.
b. Suppose the Fed decides to buy bonds.
1.) Using the line drawing tool, depict changes in the bond market. Properly label your line.
2.) Using the point drawing tool, label the new equilibrium point 'E₁'.
Carefully follow the instructions above, and only draw the required objects.
Price of Bonds
1000-
900-
800-
700-
600-
500-
400-
300-
200-
100-
0-
0
T
5
10
So
Eo
15 20 25 30 35
Quantity of Bonds
D
40 45
7
50
Q

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