Factors that cause the demand curve for bonds to shift to the left include
A) an increase in the inflation rate.
B) an increase in the liquidity of stocks.
C) a decrease in the volatility of stock prices.
D) all of the above.
E) none of the above.

Question

Quizplus · Accepted Answer

An increase in the inflation rate makes bonds less attractive because the fixed payments from bonds lose purchasing power, leading to a decrease in demand. An increase in the liquidity of stocks makes them more attractive compared to bonds, shifting demand away from bonds. A decrease in the volatility of stock prices makes stocks more attractive as they become less risky, again shifting demand away from bonds. All these factors cause the demand curve for bonds to shift to the left.

Factors That Cause the Demand Curve for Bonds to Shift