For problem 1-6, explain how the interests will change in your words, or draw the change on a supply-demand diagrams. 1. An important way in which the Federal Reserve decreases the money supply is by selling bonds to the public. Using a supply-and-demand analysis for bonds, show what effect this action has on interest rates.

2. Explain what effect an increasing, large federal deficit might have on interest rates.

3. In the aftermath of the global financial crisis, U.S. government budget deficits increased dramatically, yet interest rates on U.S. Treasury debt fell sharply and stayed low for many years. Does this make sense? Why or why not?

4. Using a supply-and-demand analysis for bonds, show what the effect is on interest rates when the riskiness of bonds rises.

5. Predict what will happen to interest rates if the public suddenly expects a large increase in stock prices.

6. Predict what will happen to interest rates if prices in the bond market become more volatile.