When the government increases borrowing by issuing bonds, bond prices then _____ and interest rates _____.

Question

Quizplus · Accepted Answer

When the government increases borrowing by issuing bonds, it increases the supply of bonds in the market. This increase in supply causes bond prices to decrease due to decreased demand for the bonds. As bond prices decrease, interest rates increase to maintain the equilibrium between supply and demand in the bond market.

When the Government Increases Borrowing by Issuing Bonds, Bond Prices