Calculate the effect on the equilibrium interest rate

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Reference no: EM13179159

The demand curve and supply curve for one-year discount bonds with a face value of $1,000 are represented by the following equations:

Bd : Price = -0.06 Quantity + 1140

Bs : Price = Quantity + 700

Suppose that, as a result of monetary policy actions, the Federal Reserve sells 80 bonds that it holds.

A. How does the Federal Reserve policy affect the bond supply equation?

B. Calculate the effect on the equilibrium interest rate in this market, as a result of the Federal Reserve action.

Reference no: EM13179159

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