During a period of economic expansion,when expected profitability is high
A) the demand curve for bonds shifts to the left.
B) the supply curve of bonds shifts to the right.
C) the equilibrium interest rate falls.
D) the equilibrium price of bonds rises.

Question

Quizplus · Accepted Answer

During a period of economic expansion, when expected profitability is high, firms are more likely to invest in projects and expand their businesses, resulting in an increase in their demand for funds to finance their investments. This increase in demand for funds causes the supply of bonds to shift to the right, as more bonds are issued to finance these investment projects. As a result, the equilibrium interest rate falls, and the price of bonds may or may not rise, depending on the magnitude of the shift in supply and demand. However, the demand curve for bonds does not shift to the left in this scenario.

During a Period of Economic Expansion,when Expected Profitability Is High