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

Question

Quizplus · Accepted Answer

When the Treasury issues a large number of T-bills to finance a large increase in the budget deficit, the supply of T-bills in the market increases. This increase in supply puts upward pressure on the yield of T-bills as investors demand higher yields to compensate for the increased supply of T-bills. Therefore, option C is the correct answer.

Assume That the Treasury Experiences a Large Increase in the Budget