-When the Bank of Canada engages in a tight money policy,the price of bonds tends to:

Question

Quizplus · Accepted Answer

When the Bank of Canada (or any central bank) engages in a tight money policy, it typically increases interest rates to reduce inflation and slow down economic growth. Higher interest rates make new bonds more attractive because they offer higher yields. Consequently, the price of existing bonds, which have lower interest rates compared to the new bonds issued in the higher interest rate environment, tends to fall. This is because investors prefer to buy new bonds that offer higher returns, reducing the demand for existing bonds with lower yields.

-When the Bank of Canada Engages in a Tight Money