Reference no: EM132017325

Explain what a yield curve shows. What must be held constant among the bonds whose interest rates are shown on a yield curve? B. When the Fed conducts conventional open market purchases it purchases short-term Treasury bonds. Because short-term interest rates were near zero, the Fed undertook some unconventional policies in response to the recent financial crisis. One of them was termed Quantitative Easing (QE) by the media—the Fed prefers the term Large Scale Asset Purchases (LSAP). This policy involved very large purchases of long-term Treasury bonds. Using the bond-market model (which you encountered first in Chapter 5), explain what this QE policy does to long-term interest rates. You must provide an appropriate demand and supply graph and explain your answer. Label the graph properly. C. What does this QE policy do the yield curve? Explain your answer.