Question: Please help! 1. a. In the graph below show the Bond Supply-Demand model in equilibrium at price = $1000 and an interest rate of 12%,
Please help!


1. a. In the graph below show the Bond Supply-Demand model in equilibrium at price = $1000 and an interest rate of 12%, at a quantity of $100,000. Be sure to label all three axes, the curves, and the point of equilibrium (A). [4 points] b. Assume that the current market price is $900. At this price is there an excess supply or excess demand for bonds? At this price is there an excess supply or excess demand for money (hint: think of the liquidity preference framework)? Will bond vields go up or down if the excess supply/demand is resolved, and the market moves back to equilibrium? [4 points]c. Assume that the economy enters a boom period. Explain how the economic expansion affects bond demand and bond supply. Now show in the (original) graph above how the recession affects the bond market. Label the new equilibrium (B), the new quantity (Q1), the new price (P,), and the new equilibrium interest rate (i,). [4 points] d. Now explain how the impact of the expansion on the interest rate would change if the Federal Government responded to the strong economy by decreasing spending and its budget deficit. (Showing the change graphically is not necessary, but feel free to draw a graph if it helps you think through the answer.) [4 points]
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