Suppose that the demand for and supply of bonds both change with the state of the business cycle. In economic expansions, the demand for bonds is given by the equation 11eb7990_cb38_7b8d_894f_cfab72d7cc6d_SM2790_00 and the supply of bonds is 11eb7990_cb38_7b8e_894f_dfed349d7112_SM2790_00 where r is the expected real interest rate. In recessions, however, both the demand for and supply of bonds is lower: 11eb7990_cb38_a29f_894f_5befe81fc767_SM2790_00 a Given these equations, what is the equilibrium expected real interest rate in economic expansions? b Given these equations, what is the equilibrium expected real interest rate in recessions? c If the expected infl ation rate is 4 percent in economic expansions, what is the equilibrium nominal interest rate in economic expansions? d If the expected infl ation rate is 2 percent in recessions, what is the equilibrium nominal interest rate in recessions?

M & B 4th Edition by Dean Croushore

النسخة 4الرقم المعياري الدولي: 978-1111823351

M & B 4th Edition by Dean Croushore

النسخة 4الرقم المعياري الدولي: 978-1111823351

تمرين 9

Suppose that the demand for and supply of bonds both change with the state of the business cycle. In economic expansions, the demand for bonds is given by the equation

and the supply of bonds is

where r is the expected real interest rate. In recessions, however, both the demand for and supply of bonds is lower:

a Given these equations, what is the equilibrium expected real interest rate in economic expansions?
b Given these equations, what is the equilibrium expected real interest rate in recessions?
c If the expected infl ation rate is 4 percent in economic expansions, what is the equilibrium nominal interest rate in economic expansions?
d If the expected infl ation rate is 2 percent in recessions, what is the equilibrium nominal interest rate in recessions?

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The demand for and supply of bonds in tw...