Calculate the effect on the equilibrium interest rate

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Reference no: EM131004712

The demand and supply curves for one year discount bonds with the face value of $1000 are represented by the following equations: B DD : P = −0.6Q + 1140 (3) B SS : P = Q + 700 (4) where, P = Price, Q = Quantity, BDD = Demand, BSS = Supply Suppose that, as a result of monetary policy actions, the bank of Canada sells 80 of its bonds that it holds. Assume bond demand and money demand are held constant. a. How does the bank of Canada policy affect the bond supply equation? b. Calculate the effect on the equilibrium interest rate in this market, as a result of the Bank of Canada action.

Reference no: EM131004712

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