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=0.8Quantity + 1,120 Price Quantity +680 Suppose that, as a result of monetary policy actions, the Federal Reserve sells 70 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 70, 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 70, at any given price, the bond supply equation will become Price = Quantity + 790. C. If the Fed increases the supply of bonds in the market by 70, at any given price, the bond supply equation will become Price = Quantity + 750. OD. If the Fed decreases the supply of bonds in the market by 70, at any given price, the bond supply equation will become Price = Quantity + 730. 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 %. (Round your intermediate calculations to the nearest whole number. Round your final answer to two decimal places.)
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=0.8Quantity + 1,120 Price Quantity +680 Suppose that, as a result of monetary policy actions, the Federal Reserve sells 70 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 70, 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 70, at any given price, the bond supply equation will become Price = Quantity + 790. C. If the Fed increases the supply of bonds in the market by 70, at any given price, the bond supply equation will become Price = Quantity + 750. OD. If the Fed decreases the supply of bonds in the market by 70, at any given price, the bond supply equation will become Price = Quantity + 730. 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 %. (Round your intermediate calculations to the nearest whole number. Round your final answer to two decimal places.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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=0.8Quantity + 1,120
Price = Quantity +680
Suppose that, as a result of monetary policy actions, the Federal Reserve sells 70 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 70, at any given price, the bond supply equation will
become Price = Quantity + 610.
OB. If the Fed decreases the supply of bonds in the market by 70, at any given price, the bond supply equation will
become Price = Quantity +790.
OC. If the Fed increases the supply of bonds in the market by 70, at any given price, the bond supply equation will
become Price = Quantity + 750.
D. If the Fed decreases the supply of bonds in the market by 70, at any given price, the bond supply equation will
become Price = Quantity + 730.
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 %. (Round your intermediate calculations
to the nearest whole number. Round your final answer to two decimal places.)
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