Question

Consider the impact on the market for U.S. Treasury bonds when there is uncertainty about returns on the U.S. stock market. What changes in the market for U.S. Treasury bonds? What happens to the equilibrium, price, quantity, and interest rate on U.S. Treasury bonds? **Select ALL that apply. **

___ Demand for U.S. Treasury bonds rises

___ Demand for U.S. Treasury bonds falls

___ Demand for U.S. Treasury bonds does not change

___ quantity increases

___ quantity decreases

___ Supply of U.S. Treasury bonds rises

___ Supply of U.S. Treasury bonds falls

___ Supply of U.S Treasury bonds does not change

___ price increases

___ price decreases

___ interest rate increases

___ interest rate decreases

Answer 1

The correct answers are:

Demand for U.S. Treasury bonds falls

quantity decreases

Supply of U.S Treasury bonds does not change

price decreases

interest rate increases

Reason: Due to uncertainty of returns, the demand for US Treasury bonds decreaes with supply remaining the constant. Thus, the price of the bond and equilibrium quantity decreaes. Given, the inverse relationship between price of bond and interest rate, the intrest rate rises when the price of bond decreases.

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