The demand curve and supply curve for one-year discount bonds with a face value of $1,030 are represented by the following equations: Bd. Price = BS: Price = -0.8Quantity +1,100 Quantity + 710 Suppose that, as a result of monetary policy actions, the Federal Reserve sells 60 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 decreases the supply of bonds in the market by 60, at any given price, the bond supply equation will become Price = Quantity + 750. B. If the Fed increases the supply of bonds in the market by 60, at any given price, the bond supply equation will become Price = Quantity + 650. C. If the Fed increases the supply of bonds in the market by 60, at any given price, the bond supply equation will become Price = Quantity + 770. OD. If the Fed decreases the supply of bonds in the market by 60, at any given price, the bond supply equation will become Price = Quantity + 810. Calculate the effect on the equilibrium interest rate in this market, as a result of the Federal Reserve action. to % (Round your intermediate calculations The expected interest rate on a one-year discount bond will increase 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 $1,030 are represented by the following equations: Bd. Price = BS: Price = -0.8Quantity +1,100 Quantity + 710 Suppose that, as a result of monetary policy actions, the Federal Reserve sells 60 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 decreases the supply of bonds in the market by 60, at any given price, the bond supply equation will become Price = Quantity + 750. B. If the Fed increases the supply of bonds in the market by 60, at any given price, the bond supply equation will become Price = Quantity + 650. C. If the Fed increases the supply of bonds in the market by 60, at any given price, the bond supply equation will become Price = Quantity + 770. OD. If the Fed decreases the supply of bonds in the market by 60, at any given price, the bond supply equation will become Price = Quantity + 810. Calculate the effect on the equilibrium interest rate in this market, as a result of the Federal Reserve action. to % (Round your intermediate calculations The expected interest rate on a one-year discount bond will increase 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 $1,030 are represented by the
following equations:
Bd.
Price =
BS:
Price =
-0.8Quantity +1,100
Quantity + 710
Suppose that, as a result of monetary policy actions, the Federal Reserve sells 60 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 decreases the supply of bonds in the market by 60, at any given price, the bond supply equation will
become Price = Quantity + 750.
B. If the Fed increases the supply of bonds in the market by 60, at any given price, the bond supply equation will
become Price = Quantity + 650.
C. If the Fed increases the supply of bonds in the market by 60, at any given price, the bond supply equation will
become Price = Quantity + 770.
OD. If the Fed decreases the supply of bonds in the market by 60, at any given price, the bond supply equation will
become Price = Quantity + 810.
Calculate the effect on the equilibrium interest rate in this market, as a result of the Federal Reserve action.
to % (Round your intermediate calculations
The expected interest rate on a one-year discount bond will increase
to the nearest whole number. Round your final answer to two decimal places.)
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