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ECON 3P03 (19)
Lecture

# Derivation of the supply curve for Bonds.docx

2 Pages
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Department
Economics
Course Code
ECON 3P03
Professor
Zisimos Koustas

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Derivation of the supply curve for Bonds (B^s) Point C: P=\$750 i = (\$1000-\$750) / \$750 = 0.33 = 33% B^s = \$100 billion Point D: P=\$800 i = (\$1000-\$800) / \$800 = 0.25 = 25% B^s = \$200 billion P i% B^s ↓ 800 25 D 750 C 33 ↑ 0 \$billion 100 200 Figure 2. The supply of Bonds As the price of bonds rises their expected yield falls reducing the cost of borrowing by issuing bonds and increasing the supply of bonds. Market equilibrium P i% A B’ B ↓ 950 E 5.3 900 1 1.1 P*=850 i*=17.6 800 C 25 750 D 33 ↑ BA 0 \$billion 100 200 300  When P>P* or i < i* → B^s >
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