What will happen to interest rate, price of bonds and quantityof bondsif interest rates are expected to decrease dramatically, all other things constant? Show this on a graph.2The demand curve and supply curve for one-year discount bonds with a face value of $900 are represented by the following equations. What is the expected equilibrium price and quantity of discount bonds in this market?What is the yield to maturity in this market?
3 Supposethe interest rate in the economy falls. Starting from a long-run equilibrium, use a graph to show what will happen to the price level, real GDP, and employment in the short-run. Also, explain how output can return to the natural rate in the long-run without any government intervention.