-Refer to Exhibit 15-4.Identify the appropriate state of the bond market that would fill in blanks (A),(B),and (C),respectively.
A) surplus; shortage; equilibrium
B) shortage; surplus; equilibrium
C) surplus; surplus; equilibrium
D) shortage; shortage; equilibrium

Question

-Refer to Exhibit 15-4.Identify the appropriate state of the bond market that would fill in blanks (A),(B),and (C),respectively.
A) surplus; shortage; equilibrium 
B) shortage; surplus; equilibrium 
C) surplus; surplus; equilibrium 
D) shortage; shortage; equilibrium

Quizplus · Accepted Answer

When the bond market is in surplus, there are more bonds available for sale than there are buyers. This drives down bond prices and raises interest rates. When the bond market is in shortage, there are more buyers for bonds than there are bonds available for sale. This drives up bond prices and lowers interest rates. When the bond market is in equilibrium, the supply of bonds is equal to the demand for bonds. This results in stable bond prices and interest rates.