As wealth increases in the economy, we would expect to observe
A)bond prices and interest rates both rise.
B)bond prices and interest rates both fall.
C)bond prices rise and interest rates fall.
D)bond prices fall and interest rates rise.

Question

Quizplus · Accepted Answer

As wealth increases in the economy, individuals and institutions have more money to invest, leading to an increase in demand for bonds. This increase in demand for bonds causes bond prices to rise. At the same time, with more money in circulation, the supply of money increases, leading to a decrease in interest rates. Therefore, we would expect to observe bond prices rise and interest rates fall as wealth increases in the economy.

As Wealth Increases in the Economy, We Would Expect to Observe