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Unformatted text preview: The demand for bonds will decrease as the real return on bonds will decrease.= Show this as a leftward shift in the demand for bonds. On the other hand, the supply of bonds will increase as the real cost of borrowing is lower Show this as a rightward shift in the supply of bonds This will reduce the price of bonds and the bond (nominal) yield will rise by 1%. The new bond yield will be 0.010408+0.02 = 0.030408 New Bond Equilibrium price = $1000/1.030408=$970. There is no information to determine the new equilibrium quantity. Draw the graph below using the above information....
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- Spring '08