Assume the market for bonds is in equilibrium - the curves of demand and supply...
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Assume the market for bonds is in equilibrium - the curves of demand and supply determine the equilibrium bond prices and the equilibrium interest rate. Suppose that the U.S. government's borrowing needs decrease, all other factors constant. Use the model of supply and demand for bonds to explain the change in the market - which curve will shift and in which direction. (10 points). Clearly explain the change in the equilibrium bond prices (5 points) and the level of the interest rates (5 points).
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