Draw a supply or demand diagram of the treasury bond market, Microeconomics

1) 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: 3/29/2013 2:50:35 AM | Location : United States







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

Write discussion on Draw a supply or demand diagram of the treasury bond market
Your posts are moderated
Related Questions
Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

what is the mass of a body when it is taken to the moon

For the pizza seller whose marginal, average variable, and average total cost curves are shown in the graph below, what is the profit-maximizing level of output and how much profit

Dumping In the international marketing, when an organization charges less for goods than it real cost or less than the organizations charges in its home market. This procedure

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Is indian companies running arisk by not giving attention to cost cutting


unique products in monopoly

Consider a two-period economy with a single commodity (say leisure): x1 is the con- sumption of leisure in period 1, and x2 is the consumption of leisure in period 2. When Peter ev

What is the theory of Second Best? Prove the theorem with the help of a diagram.