What would you expect to happen to the stock of domestic bonds in the hands of t

Question

What would you expect to happen to the stock of domestic bonds in the hands of the public as R and Y both increase along a stable MM curve? Explain in intuitive terms how such a change in the stock of domestic bonds in the hands of the public could be brought about. What would you expect to happen to the stock of domestic bonds in the hands of the public as R and Y both increase along a stable MM curve? Explain in intuitive terms how such a change in the stock of domestic bonds in the hands of the public could be brought about.

Explanation / Answer

Since the MM curve is steeper than the BB curve, as R and Y both increase along a stable MM curve, the demand for domestic bonds should be expected to increase.

This increase in demand could be satisfied only if the central bank is willing to sell the additional domestic bonds to the public.

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