Show (graph) and explain how Christmas effects bond prices and money market interest rates.
Show (graph) and explain how Christmas effects bond prices and money market interest rates.
Homework Answers
During Christmas, investors are in a bullish sentiment and therefore invest more in bonds. Demand for bonds rises, shifting bond demand curve rightward, increasing both price and quantity of bonds.
Since bond price and interest rate are inversely related, higher bond price decreases interest rate.
In following graph, D0 and S0 are initial demand and supply curves of bonds, intersecting at point A with initial price P0 and quantity Q0. As bond demand rises, D0 shifts right to D1, intersecting S0 at point B with higher price P1 and higher quantity Q1.
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Show (graph) and explain how Christmas effects
bond prices and money market interest rates.
MTv1 4. Discuss how contractionary monetary policy impacts the equilibrium interest rate using the bond market to motivate the change in the interest rate. Explain using the Bond market graph and...
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