The central bank is said to monetize the deficit when it purchases the bonds that the government issues. While this tends to hold down interest rates, it can also lead to rapid inflation if too much money is created too quickly.

During the pandemic the government purchased a lot of bonds in order to increase the money supply. Can you explain how interest rates and bond prices are related to one another and what do you think will happen to interest rates and investment with this expansion of the money supply?

Provide IN-TEXT Citations as well as credible references.

Answer rating: 100% (QA)

Interest Rates Bond Prices and the Money Supply Implications of Pandemic Bond Purchases Youre correct that central banks monetizing government deficits raises concerns about inflation and its impact o... View the full answer