Question: 7 . Global flight to quality 7. Global flight to quality In the autumn of 2008, investors, concerned about liquidity in debt markets around the

7 .

Global flight to quality

7. Global flight to quality In the autumn of 2008, investors, concerned about liquidity in debt markets around the world, fled markets deemed risky into markets that offered greater liquidity. The flight to liquidity can be seen in the interest rate spread between 3-month Treasury bills and 20-year Treasury bonds. The following two graphs show the loanable funds markets for 20-year Treasury bonds and 3-month T-bills. Adjust the following graph to show the effect of the flight to Quality on the loanable funds market for 20-year Treasury bonds. Loanable Funds Market for 20-year Treasury Bonds Supply of Demand for LF Supply ot LF Demand for LF

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