Suppose the Bank of Canada announces plans to issue $50 billion of new bonds.Assuming the announcement was not expected,what effect,other things held constant,would that have on bond prices and interest rates?
A)Prices and interest rates would both rise.
B)Prices would decline and interest rates would rise.
C)Prices and interest rates would both decline.
D)Prices would rise and interest rates would decline.

Question

Quizplus · Accepted Answer

The announcement of $50 billion of new bonds would increase the supply of bonds in the market, which would lead to a decrease in bond prices (since investors would have more options to choose from) and an increase in interest rates (since the increased supply of bonds would make them less attractive and therefore require higher interest rates to entice investors).

Suppose the Bank of Canada Announces Plans to Issue $50