If bonds and stocks are considered to be substitute goods,and the investors expect stock prices to drop in recent future:

Question

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When stock prices are anticipated to drop, investors typically move towards bonds because they perceive them to be a safer investment. This shift in demand causes the interest rate on bonds to decline. Choice (A) is incorrect because when demand for bonds increases, their price rises. Choice (B) is incorrect because an increase in supply alone cannot determine the price changes of a good. Choice (D) is incorrect because when the expected future price of a share drops, its demand typically falls as well. Choice (E) is incorrect because we have already established that demand for bonds increases in such scenarios.

If Bonds and Stocks Are Considered to Be Substitute Goods,and