An expansionary fiscal policy is likely to result in the Treasury _______ bonds, the prices of
Bonds _______, and interest rates _______.

Question

Quizplus · Accepted Answer

An expansionary fiscal policy involves increased government spending and/or tax cuts, which would require the Treasury to sell more bonds to finance the spending. As a result, the supply of bonds in the market would increase which would lead to falling bond prices due to the inverse relationship between bond prices and bond yields (interest rates). Consequently, interest rates would rise as bond prices fall. Therefore, the correct choice is D.

An Expansionary Fiscal Policy Is Likely to Result in the Treasury