Answer to Question #126134 in Macroeconomics for MD.Shafiul Islam Sizan

Question

If the money supply increases, will bond prices increase, decrease, or stay the same? Explain

Answer 1

Bond prices will increase

This is because, when money supply increases, more people will want to buy bonds that are already on the market because the coupon rate will be higher than on similar bonds about to be issued, which will be influenced by current interest rates.