Consider the impact on the market for U.S. Treasury bonds when there is uncertai
ID: 1149313 • Letter: C
Question
Consider the impact on the market for U.S. Treasury bonds when there is uncertainty about returns on the U.S. stock market. What changes in the market for U.S. Treasury bonds? What happens to the equilibrium, price, quantity, and interest rate on U.S. Treasury bonds? **Select ALL that apply. **
___ Demand for U.S. Treasury bonds rises
___ Demand for U.S. Treasury bonds falls
___ Demand for U.S. Treasury bonds does not change
___ quantity increases
___ quantity decreases
___ Supply of U.S. Treasury bonds rises
___ Supply of U.S. Treasury bonds falls
___ Supply of U.S Treasury bonds does not change
___ price increases
___ price decreases
___ interest rate increases
___ interest rate decreases
Explanation / Answer
The correct answers are:
Demand for U.S. Treasury bonds falls
quantity decreases
Supply of U.S Treasury bonds does not change
price decreases
interest rate increases
Reason: Due to uncertainty of returns, the demand for US Treasury bonds decreaes with supply remaining the constant. Thus, the price of the bond and equilibrium quantity decreaes. Given, the inverse relationship between price of bond and interest rate, the intrest rate rises when the price of bond decreases.
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