Unit 2 Written Assignment
According to the question here are the brief illustrations about the Supply and demand to describe the Treasury bond market and also to predicts direction of quality and price in this case below:
The Supply and Demand for Bonds
Interest rates have fluctuated substantially in the United States during the second half of the 20th century. For example, interest rates on 3-month T-bills were 1% in the early 1950s. Then, the interest rates on T-bills soared to over 15% in 1981 and subsequently, plummeted to below 6% in the mid-1980s and 1990s. Currently, T-bill rates have fallen below 1% after the 2008 Financial Crisis.
Everyone closely watches the interest rates. They determine whether consumers should save or buy, whether families should buy a house or purchase bonds. Furthermore, the interest rates influence business decisions to invest in new equipment or invest their money into financial securities. From Chapter 2, you have learned the major
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Supply function for bonds
Demand and supply functions intersect at one point, the equilibrium. Equilibrium reflects a state of rest. As long as the supply or demand function does not change, then the price and quantity remain where they are. We show supply and demand functions in Figure 3. At this point, the quantity demanded equals the quantity supplied for bonds. The Q* and P* represent equilibrium quantity and price. Using the present value formula, we can deduce what happens tothe market interest rate.
What would happen to the bond market if the bond's price exceeds the equilibrium price? Consequently, the quantity supplied is greater than quantity demanded, creating a surplus. Businesses and government sell more bonds because the price of bonds is high, and interest rates are low. However, the investors do not buy these bonds because the high price and lowinterest rates. Thus, the bond's price falls until restoring equilibrium at P* again.
Figure 3. Supply and demand for
Additionally, the equilibrium price, the quantity can be seen on the graph above indicated at the point where the supply and demand curve meets.
This week in my HUMI 1 class, the one topic that we discussed in class that captured my attention was the state of being Naiveté. Although being naive is often looked down upon, it can also be something that you require in order to achieve your goals. When looking into the topic of Naiveté, the first person that I went to was my father. He was a refugee after the Vietnam war in 1975. Vietnam, even to this day, is not a place that many would want to live in. According to my father, during his time there, it was a filthy place to live and everyone there would often get sick. People were forced to work to exhaustion and starvation and diseases were the main causes of death. While all of this was occurring, he and his friends would often talk about
People tend to try and predict what their future needs will be in order for them to be able to satisfy their current and future wants. The two-period model of intertemporal choice tries to interpret based on the current time period (e.g. this month) and a prediction of the future time period (e.g. next month) what consumers will be able to spend, borrow or save according to their levels of income and interest rates. In this assignment however we are mostly concerned on the changes of interest rate and specifically the impact an increase in the level of interest rates would have to consumers who are either savers or borrowers in the first period and how would that affect their consumption levels.
Open market operations directly affect the money supply through buying short-term government bonds (to expand money supply) or selling them (to contract it). Benchmark interest rates, such as the LIBOR and the Fed funds rate, affect the demand for money by raising or lowering the cost to borrow—in essence, money's price. When borrowing is cheap, firms will take on more debt to invest in hiring and expansion; consumers will make larger, long-term purchases with cheap credit; and savers will have more incentive to invest their money in stocks or other assets, rather than earn very little—and perhaps lose money in real terms—through savings accounts. Policy makers also manage risk in the banking system by mandating the reserves that banks must keep on hand. Higher reserve requirements put a damper on lending and rein in inflation.
Inverted Yield Curve – It is a yield curve in which long-term securities have lower yield than ...
Reserve, Martenson Report, Treasury bills, Treasury bonds." ChrisMartenson.com. 25 Aug. 2009. Web. 7 Nov. 2009.
The first major aspect of the monetary policy by the Federal Reserve is its interest rate policy. This interest rate policy is mainly determined by the figure for the federal funds rate, which is the rate at which commercial banks with balances held within the Federal Reserve can borrow from each other overnight in ord...
In economics, particularly microeconomics, demand and supply are defined as, “an economic model of price determination in a market” (Ronald 2010). The price of petrol in Australia is rising, but the demand remains the same, due to the fact that fuel is a necessity. As price rises to higher levels, demand would continue to increase, even if the supply may fall. Singapore is identified as a primary supplier ...
The last assumption is that savings will equal the investment which will lead to equilibrium; however, Classical theorist are realist and know this will not always happen, thus, they believe the flexible interest rates will help with the equilibrium.
A single firm or company is a producer, all the producers in the market form and industry, and the people places and consumers that an Industry plans to sell their goods is the market. So supply is simply the amount of goods producers, or an industry is willing to sell at a specific prices in a specific time. Subsequently there is a law of supply that reflects a direct relationship between price and quantity supplied. All else being equal the quantity supplied of an item increases as the price of that item increases. Supply curve represents the relationship between the price of the item and the quantity supplied. The Quantity supplied in a market is just the amount that firms are willing to produce and sell now.
You have been asked to write a training document about the US Bond Market for use in the new employee-training program. In your document, you must make sure to address each of the following:
What are demand and supply? Firstly, we should briefly understand some basic concepts and the relationships between them in the economic environment. Demand is about the amount of goods that satisfy human wants while supply is to provide products that are wanted or needed. In addition, pricing has a big influence on them. The profit of the firms depends on it. When the price goes up, the quantity demanded will decrease and vice versa. It means demand and price have an inverse relationship. On the other hand, the quantity supplied will increase when the price rises so they change in the same direction.
Much like gross domestic product (GDP) interest rates branch into nominal and real. When one is familiarizing themselves with interest rates, being able to distinguish between a nominal and a real interest rates is cruci...
Laidler, D., (1966). “The Rate of Interest and the Demand for Money: Some Empirical Evidence”, Journal of Political Economy, Vol. 74, pp. 545–555.
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.