Question: Question 3 (20 marks) Yield Term to Maturity Refer to the figure above. The yield curve is flat and the central bank makes a substantial

Question 3 (20 marks) Yield Term to Maturity Refer to the figure above. The yield curve is flat and the central bank makes

Question 3 (20 marks) Yield Term to Maturity Refer to the figure above. The yield curve is flat and the central bank makes a substantial increase in the supply of short-term government securities. a) According to the segmented markets approach, what is the effect of the central bank's move on the yield curve? Demonstrate your answer using a diagram of yield curve. (10 marks) b) Based on your answer in (a), discuss the impact of the central bank's action on the economy. (5 marks) c) Will you answer in (b) differ if you believe in expectation theory? Explain your answer in a short paragraph. (5 marks) Question 3 (20 marks) Yield Term to Maturity Refer to the figure above. The yield curve is flat and the central bank makes a substantial increase in the supply of short-term government securities. a) According to the segmented markets approach, what is the effect of the central bank's move on the yield curve? Demonstrate your answer using a diagram of yield curve. (10 marks) b) Based on your answer in (a), discuss the impact of the central bank's action on the economy. (5 marks) c) Will you answer in (b) differ if you believe in expectation theory? Explain your answer in a short paragraph

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