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The demand curve and supply curve for one-year discount bonds with a face value of
$1,000 are represented by the following equations:
| Bd: | Price | = | - 0.80.8Quantity + 1,120 |
| Bs: | Price | = | Quantity + 680 |
Suppose that, as a result of monetary policy actions, the Federal Reserve sells
90 bonds that it holds. Assume that bond demand and money demand are held constant. Which of the following statements is true?
A. If the Fed increases the supply of bonds in the market by 90, at any given price, the bond supply equation will become Price= Quantity + 590.
Your answer is correct.
Calculate the effect on the equilibrium interest rate in this market, as a result of the Federal Reserve action.
The expected interest rate on a one-year discount bond will
increase to ( ___% ).
(Round your intermediate calculations to the nearest whole number. Round your final answer to two decimal places.)
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