Question

Suppose there is an expectation of a decrease in expected returns on investments. How will this...

Suppose there is an expectation of a decrease in expected returns on investments. How will this affect the bond market?

A.        The equilibrium price will fall and the equilibrium quantity will rise.

B.        The equilibrium price will fall and the equilibrium quantity will fall.

C.        The equilibrium price will rise and the equilibrium quantity will rise.

D.        The equilibrium price will rise and the equilibrium quantity will fall.

E.         We cannot determine the outcome without more information.

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Answer #1

From the given statement it can be clearly seen that if the expectation from investment of bond is low then people will find not it as an attractive option for investment and they will invest less in it

This will cause the demand for investment to decrease

The decrease in demand can be shown on the demand curveby shifting of the demand curve towards the left shown below

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