Figure 8-6 the Vertical Distance Between Points a and B Represents a Represents

question 211

Multiple Choice

Figure 8-6
The vertical distance between points A and B represents a tax in the market.
-Refer to Figure 8-6.What happens to consumer surplus when the tax is imposed in this market?

• A)Consumer surplus falls by $3,600.
• B)Consumer surplus falls by $2,700.
• C)Consumer surplus falls by $1,800.
• D)Consumer surplus falls by $900.

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Definitions:

Expectations Theory

A theory suggesting that long-term interest rates reflect the market's expectation for future short-term rates.

Liquidity Preference Theory

Theory that investors demand a risk premium on long-term bonds. Implies that the forward rate generally will exceed the expected future interest rate.

Treasury Bond

A Treasury bond is a long-term, fixed-interest government debt security with a maturity of 20 to 30 years and pays interest every six months.

STRIPPED Cash Flows

Cash flows that are separated or "stripped" from an asset for investment or valuation purposes, often for the construction of zero-coupon bonds.