Question

your answers with maths and love supplen heel graphs your a Quation as e suppose that people en that increase France their decide to paving rate permanently Predict what will happen bond market en bhd future expect higher or a lowe irt crost rates ? Supplement your answers with maths and I in lisher sed suture . or a lower lam France domestic or graphs

Answer 1

If the saving rate permanently increases, there will be an increase in​ wealth.

And as wealth increases, demand for bond increases.

Which leads to create a shift to the right in the demand curve for bonds in France.

As demand curve shift to the right, the price of bond rises and as price of bond and interest rate are inversely related. It would lead to lower the domestic interest rate.

France can therefore expect permanent lower interest rates in the future.

Graph:

As the price of bond rises, the demand for loanable fund falls, which lead to shift backward of demand of loanable fund and reduce interest rate.

Price of Bonds Supply of bonds (by borrowers) Demand for bonds Coy savers) Quantity of Bonds KEY: Pe - price of bonds QB = quantity of bonds Sp= supply of bonds by borrowers DB - demand for bonds by saver-lenders

Interest rate Quantity of loanable funds