Explain how the bond market adjusts to equilibrium

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Reference no: EM131305456

1. Why does the supply curve for bonds slope up? Why does the demand curve for bonds slope down?

2. If the current price in the bond market is above the equilibrium price, explain how the bond market adjusts to equilibrium. Briefly explain whether each of the following statements is true or false:

a. The higher the price of bonds, the greater the quantity of bonds demanded.

b. The lower the price of bonds, the smaller the quantity of bonds supplied.

c. As the wealth of investors increases, all else held constant, the interest rate on bonds should fall.

d. If investors start to believe that the U.S. government might default on its bonds, the interest rate on those bonds will fall.

Reference no: EM131305456

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