If the U.S. Treasury is forced to sell bills and bonds to the U.S. public to finance deficits, this may ________ the price of bonds and ________ the interest rates on the bonds.
A) drive down; drive down
B) drive down; drive up
C) drive up; drive down
D) drive up; drive up

Question

Quizplus · Accepted Answer

When there is an increase in supply of bonds, as in the case of the U.S. Treasury selling bills and bonds to the public to finance deficits, the price of bonds decreases due to higher competition for investment in bonds. As the price decreases, the yield or interest rate on the bonds increases to attract investors, hence driving up the interest rates on the bonds.

If the US Treasury Is Forced to Sell Bills and Bonds to Bonds