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Explain in Detail What Effect a Central Bank Purchase of Bonds

question 62

Essay

Explain in detail what effect a central bank purchase of bonds will have on: (1) the LM curve and (2) the IS curve.


Definitions:

Original Maturity

The initial term agreed upon at the issuance of a loan or bond, prior to any refinancing or alteration.

Annual Coupon Rate

The annual interest rate paid by a bond issuer to its holder, expressed as a percentage of the bond's face value.

Market Price

The immediate cost at which one can buy or sell a service or asset in the marketplace.

Semiannually

Occurring twice a year, commonly used in the context of interest payment schedules or bond coupon payments.

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