If people expect nominal interest rates to be lower in the future,the expected return to bonds ________,and the demand for money ________.
A)increases;increases
B)increases;decreases
C)decreases;increases
D)decreases;decreases

Question

Quizplus · Accepted Answer

When people expect nominal interest rates to be lower in the future, the expected return to holding bonds increases because the price of existing bonds (which have higher interest rates compared to the expected future rates) will rise. This makes bonds more attractive relative to holding money. Consequently, the demand for money decreases as individuals prefer to hold bonds instead, anticipating higher returns.

If People Expect Nominal Interest Rates to Be Lower in the Future,the