Use the diagram given above to complete the paragraph. The c…
Use the diagram given above to complete the paragraph. The country of Zipra’s bond market is in equilibrium at Q0P0. Suppose the Ziprian government is expected to run a budget deficit. Simultaneously, investors begin to worry about lending Zipra’s government money and look to the corporate bond market instead. Holding other things constant, we would expect the supply of government bonds to and the demand for government bonds to . The new equilibrium in the market for Zipra’s bonds would be . The interest rate on Zipra’s bonds will and the risk premium relative to corporate bonds would .