The following graph shows a bond market in equilibrium at a bond price of $5.

Use the following graph input tool to answer the questions that follow. (Note: You will not be graded on any adjustments you make to the graph.)

012345678910109876543210BOND PRICE (Dollars)QUANTITY (Millions of bonds)Demand Supply

Graph Input Tool

Bond Market
	Current Price
	Quantity Demanded (Millions of bonds)			Quantity Supplied (Millions of bonds)
	Surplus (Millions of bonds)			Shortage (Millions of bonds)

Suppose the bond price has changed to $8, creating a of

million bonds. (Hint: Enter the new price in the Current Price field to see the changes in quantity demanded and quantity supplied.)

Suppose that instead the bond price has changed to $4. This creates a of

million bonds.

Which of the following best describes how the bond market works when there is a surplus?

Quantity demanded increases until the old equilibrium is reached.

Quantity supplied increases while quantity demanded declines until the market achieves equilibrium.

Quantity supplied declines while quantity demanded increases until the market achieves equilibrium.

Quantity supplied declines until the old equilibrium is reached.

Which of the following best describes how the bond market works when there is a shortage?

Quantity supplied increases whereas quantity demanded declines until the market achieves equilibrium.

Quantity supplied declines until the old equilibrium is reached.

Quantity supplied declines whereas quantity demanded increases until the market achieves equilibrium.

Quantity demanded increases until the old equilibrium is reached.