In the market for debt securities that promise to pay $1,500 in one year, the quantity demanded is

Bd =250 - 0.15b - 20Wt - 10W+1

where b is the price of a security, Wtis a variable equal to 1 if the economy is in an expansion today and 0 if the economy is in a recession today, and Wt+1is a variable equal to 1 if the economy is expected to be in an expansion next year and 0 if the economy is expected to be in a recession next year. The quantity supplied of the security is

Bs = 50+ 0.05b + 40Wt + 20Wt+1

Calculate the equilibrium price and quantity of the security.

Answer rating: 100% (QA)

Answer To find the equilibrium price and quantity of the security we need to set the quantity demand... View the full answer