Answered step by step
Verified Expert Solution
Question
1 Approved Answer
8. Use the bond market model to show why interest rates fall during a recession. Draw a diagram to illustrate. Explain why the demand or
8. Use the bond market model to show why interest rates fall during a recession. Draw a diagram to illustrate. Explain why the demand or supply of bonds or both change in a recession. 9. For each of the following, explain if the demand curve or supply curve for bonds or both will shift. Clearly indicate the direction of the shift and in each case indicate what will happen to the interest (yield) on bonds: (a) The Fed publishes a forecast that inflation will average 5% over five years, the previous forecast was 3%. (b) The economy grows with rising corporate profits; (c) the federal government runs a series of budget surpluses; (d) investors believe that the level of risk in the stock market has increased; (e) A tax of $10 on is applied on bond purchases. 8. Use the bond market model to show why interest rates fall during a recession. Draw a diagram to illustrate. Explain why the demand or supply of bonds or both change in a recession. 9. For each of the following, explain if the demand curve or supply curve for bonds or both will shift. Clearly indicate the direction of the shift and in each case indicate what will happen to the interest (yield) on bonds: (a) The Fed publishes a forecast that inflation will average 5% over five years, the previous forecast was 3%. (b) The economy grows with rising corporate profits; (c) the federal government runs a series of budget surpluses; (d) investors believe that the level of risk in the stock market has increased; (e) A tax of $10 on is applied on bond purchases
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started