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In: Finance

If business regulatory costs are substantially reduced, using the supply and demand curves for bonds, we...

If business regulatory costs are substantially reduced, using the supply and demand curves for bonds, we can expect the equilibrium yield on bonds to _______________ and the equilibrium quantity of bonds issued to _______________.

Group of answer choices

increase; increase

increase; decrease

increase; can't tell

decrease; increase

decrease; decrease

decrease; can't tell

Solutions

Expert Solution

increase ; increase

Reduction in business regulatory cost leads to shift in supply curve of bond to right resulting in increase in equilibrium yield of bond. However this reduction of regulatory cost helps the company to issue more bonds to raise funds as debt is a cheaper source of capital and thus equilibrium quantity of bond will also increase.

jeff jeffy answered 2 years ago
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