Relationship between interest rates and price of bond

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Issue:

English

 

Written by:

Katherine B

 

Date added:

April 14, 2016

 

Level:

University

 

Grade:

A

 

No of pages / words:

4 / 857

 

Was viewed:

581 times

 

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Essay content:

This resulted in an increase in interest rates from I1 to I2. Businesses are also more willing to borrow to invest as they have more profitable investment opportunities for which they need financing. This leads to an increase in supply of bonds, shifting the supply curve of bond to the right from Bs1 to Bs2 (Figure 4)...
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The theory of asset demand states that demand for bonds will increase when there is a business cycle expansion that brought about an increase in wealth. This will result in a rightward shift of the demand curve for bonds from Bd1 to Bd2. Given that both the demand and supply curve for bonds shift right, the change in price is ambiguous as we do not know which curve shifted more because in this question, the government issued new bonds to cope with the deficit...
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