An increase in the demand for bonds leads to

Question

Quizplus · Accepted Answer

An increase in demand for bonds means that investors are willing to pay more for the same face value of bonds. This leads to an increase in the price of bonds. As the price of bonds rises, their yield (interest rate) falls because the fixed coupon payment is now a smaller percentage of the higher bond price. Therefore, a decrease in the interest rate occurs. When interest rates fall, borrowing becomes cheaper, and this stimulates borrowing and investment, which leads to an increase in aggregate demand.

An Increase in the Demand for Bonds Leads to