During an economic recession
A) the demand and supply curves for bonds both shift to the right and the equilibrium interest rate usually rises.
B) the demand and supply curves for bonds both shift to the left and the equilibrium interest rate usually falls.
C) the demand curve for bonds shifts to the right, the supply curve for bonds shifts to the left, and the equilibrium interest rate usually falls.
D) the demand curve for bonds shifts to the left, the supply curve for bonds shifts to the right, and the equilibrium interest rate usually rises.

Question

Quizplus · Accepted Answer

During a recession, there is a decrease in investment opportunities and a decrease in confidence in the economy, leading to a decrease in demand for bonds. Additionally, the government may increase its borrowing to stimulate the economy, leading to an increase in the supply of bonds. Thus, the demand and supply curves for bonds both shift to the left, leading to a decrease in the equilibrium interest rate.

During an Economic Recession