All else equal, when the Federal Reserve Banks engage in a restrictive monetary policy, the prices of government bonds usually
A) fall.
B) rise.
C) remain constant.
D) move in the same direction as the bonds' interest rate yield.

Question

Quizplus · Accepted Answer

When the Federal Reserve Banks engage in a restrictive monetary policy, they typically increase interest rates to slow down the economy and inflation. Higher interest rates reduce the demand for bonds because investors can get a better return on their money from other investments. As a result, bond prices fall, and their yields rise to attract buyers. Therefore, choice A) fall is the best answer.

All Else Equal, When the Federal Reserve Banks Engage in a Restrictive