OHCh5 - Chapter 5: The Behavior of Interest Rates 1...

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Chapter 5: The Behavior of Interest Rates
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1 Determinants of Asset Demand Wealth Expected return Risk Liquidity
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2 Supply and Demand in the Bond Market i = R e = F P P = F P 1 (1) 2.1 Market Equilibrium B d = B s (2)
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See Figure 1 2.2 Changes in Equilibrium Interest Rates 2.2.1 Shifts in the Demand for Bonds Wealth Expected return
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Problem 1: When the 1-year interest rate rises and the expected return rises for the 1-year bonds, does the demand curve shift? Explain. Problem 2: When the 1-year interest rate expected to prevail in the next year, does the demand curve for 2-year bonds shift? Assuming that the supply curve does not shift, explain what will happen to the 2-year interest rate. Risk Liquidity
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See Table 2 and Figure 2
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2.2.2 Shifts in the Supply for Bonds n Expected in±ation See Figures 4 and 5 Government budget See Table 3 and Figure 3
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2.2.3
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This note was uploaded on 07/17/2008 for the course ECON 520 taught by Professor Ogaki during the Spring '07 term at Ohio State.

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OHCh5 - Chapter 5: The Behavior of Interest Rates 1...

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