Suppose that the expected return on bonds falls relative to other assets.In the bond market this will result in:

Question

Quizplus · Accepted Answer

When the expected return on bonds falls relative to other assets, investors will be less willing to buy bonds, which will lead to a decrease in demand for bonds. This will cause a shift to the left of the bond demand curve. The result of this shift will be a lower quantity of bonds demanded at any given price level, and a lower equilibrium price for bonds. The bond supply curve is unaffected by changes in expected returns, as it represents the amount of bonds that sellers are willing to offer at various price levels. Movement down the bond demand curve and an increase in the price of bonds are incorrect choices.

Suppose That the Expected Return on Bonds Falls Relative to Other