Posted: November 18th, 2022

# Calculate the equilibrium interest rate and dollar amount

Point Price of bond Interest rate (i) Demand
A \$925 (1000 – 925)/ 925 = 8.1% \$100 billion
B \$800 (1000 – 800)/ 800 = 25% \$400 billion

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Table 2: Supply of Bonds

Point Price of bond Interest rate (i) Demand
A \$925 8.1% \$400 billion
B \$800 25 % \$100 billion

Draw the demand and supply schedules for bonds using:

X- axis : \$Amount
Y- axis: Interest rate

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Calculate the equilibrium interest rate and dollar amount. Interpret this graph using the Loanable funds theory.

Discuss various factors that affect the demand for bonds and supply of bonds.

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