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An economist has concluded that, near the point of equilibrium, the demand and supply curve for one-year discount bonds can be estimated using the following
- An economist has concluded that, near the point of equilibrium, the demand and supply curve for one-year discount bonds can be estimated using the following equations:
Bond Demand: Price=-25Quantity+940
Bond Supply: Price=Quantity+500
- What is the expected equilibrium price and quantity of bonds in this market? (Hint: The equilibrium price is the one that makes the quantity demanded equal to the quantity supplied.)
- Given your answer in part (a), what is the expected interest rate in this market if the face value is $1,000? (Hint: For one-year discount bond, the interest rate is Face Value-Price of BondPrice of Bond.)
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