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
Defining black economy, If you pay your cleaner or builder in cash or for some reason neglect to tell the taxman which you were paid for a service rendered, you participate in the

V alue Additivity In an efficient market the value of any 2 assets can be estimated as the sum of the values of the two individual assets. This is a variation on the theme

Why narrowness of definition of a commodity may influence price elasticity of demand

Draw a marginal utility cureve for a good that has a constant marginal utility

Economic Reforms and Industrial Growth Economic reforms were mainly intended to remove obstacles so that investment in industry may be accelerated. With this end in view, indu

??????? ??? ???? ??? # 100 ?????? #Minimum ?????? ?????

NEED OF REFORMS: Presently Government offices generate  a lot of paper work in the form of reports/returns, extended file movement in many cases for clarification of some mino

is the industry of electric power on the large economies scale

Suppose that demand is downward sloping and supply upward sloping. Subsidies cause dead weight loss despite the fact that: 1)consumer surplus increases. 2)total surplus increases

periodic table groups and acid and basic radical