Draw the price of bonds on the Y-axis and the Value of Bonds ($) on the X-axis,
Question:
Draw the price of bonds on the Y-axis and the Value of Bonds ($) on the X-axis, and draw the supply and demand curves for bonds. Suppose there is an increase in the volatility of the stock market holding other factors constant. There is a shift in the demand curve for bonds, i.e., there is a change in the demand for bonds. Which of the following is the most likely scenario?
A. Inflation rates will always go up when there is increased volatility of the stock market.
B. The demand for bonds will almost certainly decrease when there is an increase in the volatility of the stock market.
C. The Federal Reserve will usually raise interest rates when there is an increase in the volatility of the stock market.
D. The quantity of bonds supplied declines and prices of bonds on average have declined as a result of an increase in the volatility of the stock market.
E. The required rate of returns of the bonds will be lower on average with selling in the stock market and the demand for bonds increases.
Macroeconomics Principles Applications And Tools
ISBN: 9780134089034
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez