Figure 10-8 -Refer to Figure 10-8. If the Economy Is at Point

question 39

Multiple Choice

Figure 10-8
-Refer to Figure 10-8. If the economy is at point c, the Federal Reserve can close the output gap by buying bonds. In the bond market,

• A) the supply curve shifts right, leading to a decrease in bond prices and an increase in interest rates.
• B) the demand curve shifts right, leading to an increase in bond prices and a decrease in interest rates.
• C) the supply curve shifts left, leading to an increase in bond prices and an increase in interest rates.
• D) the demand curve shifts left, leading to a decrease in bond prices and an increase in interest rates.

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Definitions:

Call Option

A call option is a financial contract that gives the buyer the right, but not the obligation, to buy an asset at a specified price within a specific time period.

Convertible Bond

A type of bond that can be converted into a predetermined number of the issuing company's shares, typically at the discretion of the bondholder.

Convertible Bonds

Financial instruments that can be converted into a specified number of common stock shares at the discretion of the bondholder, usually at certain times during their life.

Control

The power to influence or direct people's behavior or the course of events.