When the price of a bond is the equilibrium price, there is an excess demand for bonds and the price will .

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05-09-2022
Business

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When the price of a bond is the equilibrium price, there is an excess demand for bonds and the price will .

Sagot :

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nikitavidya0 nikitavidya0 · Answer 1 · 2022-09-15T04:55:29-04:00

When the price of a bond is below the equilibrium price, there is an excess demand for bonds and the price will rise.

What is Demand?

Demand refers to the amount of the money spent on the purchase of the commodity for the particular period of time. It includes the demand of the consumer goods, imports, and government spending.

The excess demand for the bond tends to increase the prices of bonds and rate of interest falls. Thus, ultimately leading to new equilibrium interest rate is lower than previous one.

Therefore, it can be concluded that When a bond's price is lower than its equilibrium price, there is an inflationary pressure on bonds, and the price rises.

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What is Demand?

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