-Refer to Table 12.1. The change in the price of the bond is likely to be the result of
A) a decrease in the price of goods and services.
B) an increase in government spending.
C) an increase in the price of goods and services.
D) a decrease in the supply of bonds.
E) none of these.

Question

-Refer to Table 12.1. The change in the price of the bond is likely to be the result of
A) a decrease in the price of goods and services. 
B) an increase in government spending. 
C) an increase in the price of goods and services. 
D) a decrease in the supply of bonds. 
E) none of these.

Quizplus · Accepted Answer

An increase in the price of goods and services typically leads to inflation, which can cause interest rates to rise. When interest rates rise, the price of existing bonds, which have fixed interest rates, generally falls because new bonds would be issued at the now higher prevailing interest rates, making the older, lower-yielding bonds less attractive.