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Suppose with a high degree of certainty, people expect interest rates to decrease over the next two years. Use a market for bonds to describe
Suppose with a high degree of certainty, people expect interest rates to decrease over the next two years. Use a market for bonds to describe and illustrate the difference in the rate of interest paid for a one-year government bond and a two-year government bond. Use two graphs for the two bond markets, and illustrate the difference in the price of bonds. Which bond has a higher interest rate? What explains this difference?
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