Use a demand and supply graph for bonds to illustrate each of the following situations.
Be sure that your graph shows any shifts in the demand or supply curves, the original equilibrium price and quantity, and the new equilibrium price and quantity. Also be sure to explain what is happening in your graphs.
a. The government runs a large deficit, holding everything else constant.
b. Households believe that future tax payments will be higher than current tax payments, so they increase their saving.
c. Both (a) and (b) occur.