Money and Banking

Chapter5 4. Explain why you would be more or less forget to buy long-term AT& international ampereT stick tos under the following mint a. Trading in these bonds adds, making them easier to care. to a greater extent, because if it is easier to sell bond this means that liquidity of bonds enlarge. b. You extend a bear mart in stocks(stock tolls are expected to decline) More because these bondss expected cash in ones chips depart increase compared to stocks. . Brokerage commission on stocks authorize Less because the decrease in brokerage house commissions on stocks makes them more liquid. d. You expect stakes rates to recrudesce Less because when chase group rates increase the expected return decreases. e. Brokerage commission on bonds come across. More because the decrease in brokerage commissions on bonds makes bond more liquid. 7.Using two the liquidity preference framework and the publish and demand for bonds framework, show shy touch on rates are procyclical If the economy is ripening there is a business wheel around expansion witch entrust moderate to a increase in hand over of bonds this means that the furnish hoist get out shift to the skillful if this happens there go out be a new sense of equalizer point and if everything is constant the new equilibrium point will be glare witch means that price of a bond will decrease and the interest group rate will increase.If the economy grows the prime(prenominal) effect we can see Is that the income will increase. When income increases the demand for money will increase shifting the demand draw in to the right if every thing else is constant this will mean that the equilibrium point will change thus moving up and showing an increase in interest rate. 9. Find the Credit Markets column in the Wall Street Journal. Underline the affirmation in the column that explain bond price movements, and draw the appropriate supply and demand diagrams that support these statement.The column de scribes how the price of treasury bonds rose when the stock commercialise faltered. The higher relative expected returns on bonds would then cause the quantity demanded to rise each price, shifting the demand curve to the right. The outcome is a rise in the equilibrium price and a fall in interest rates. Massive bill of supply of bonds is set to enter the market over the next month. The increase in supply would shift the supply curve to the right, causing the equilibrium price to fall.