Assume that the Treasury experiences a large increase in the budget deficit and issues a large number of short-term securities (Treasury bills or T-bills). This action will ____ the supply of T-bills in the market and place ____ pressure on the yield of T-bills.
A)decrease; downward
B)decrease; upward
C)increase; upward
D)increase; downward

Question

Quizplus · Accepted Answer

Issuing a large number of short-term securities increases the supply of T-bills in the market. According to the law of supply and demand, an increase in supply, with demand remaining constant, typically puts upward pressure on yields (interest rates) as the government needs to make the securities more attractive to investors.

Assume That the Treasury Experiences a Large Increase in the Budget