Draw a supply or demand diagram, Business Economics

Draw a Supply or Demand Diagram

A) Suppose that several months of data showed the CPI increasing at a 4.5% annual rate due  largely to increases in the price of energy and food related commodities following several years when the CPI only increased by 1% per year.  Suppose this increase causes investor expectations of annual inflation to also increase from 1% to 4.5%.  Assume, at the same time that fears of higher inflation creates concerns that rising interest rates will derail the economic recovery and lead to Another recession. Assume the resulting increase in risk aversion among investors drives the expected real rate of return required to equate investor demand to the existing supply of 1 year Treasury notes down to 0.5 %  from  2%.  What would you expect to happen to the nominal yields on 1-year T-notes during the period over which these changes in inflation expectations and required real yields occurred? (Give a numerical answer if possible) Explain your reasoning.

B) Draw a supply/demand diagram of the US Treasury bond market to illustrate the effects on it of the developments cited in part A. (Note: you do not have to include the exact numerical price before and after the change in expectations.)   Label your diagram clearly.

Posted Date: 2/15/2013 4:50:44 AM | Location : United States







Related Discussions:- Draw a supply or demand diagram, Assignment Help, Ask Question on Draw a supply or demand diagram, Get Answer, Expert's Help, Draw a supply or demand diagram Discussions

Write discussion on Draw a supply or demand diagram
Your posts are moderated
Related Questions
Things like housing and autos tend to be affected by changes in interest rates due to financing is typically needed to make such purchases. If financing becomes more costly due to

Question: (a) Discuss the conditions necessary to achieve Pareto Efficiency. (b) Competitive markets are generally assumed to lead to a Pareto optimal allocation of resource

General Agreement on T arif fs and Trade (GATT) A multilateral treaty, the basic goals of which are: (1) to liberalize and promote world trade via multilatera


How does colonial background influence the development process? Colonial experience influences: • Language for example the official language of US is English. • Legal and

You can buy as many drinks as you want at $1 each. You can also buy as many chocolate bars as you want at $2 each. You have $5 to spend. You must buy whole bars and drinks, that is

For any stock splits (if there were any it will look like the screen below) compare the actual and theoretical price adjustment.  For example, on the day that a 2-for-1 split is ef

What is meant by the term value tree? Value Tree: A value tree gradually decomposes the overall objectives of a project within more exact objectives which can be agreed through

The Basic assumption which underlay the government of international economy has been that the economies of the world would converge around a capitalist model. The details of such a

INVESTIGATE AND FIND SOLUTION TO HOUSEKEEPING SAFETY PROCESS WITH LAYOUT IN PLANT, WHAT PROCESS CHARTS WILL NEED TO SOLVE THIS PROBLEM