Question

Everything else held constant, during a business cycle expansion, the supply of bonds shifts to the ________ as businesses perceive more profitable investment opportunities, while the demand for bonds shifts to the ________ as a result of the increase in wealth generated by the economic expansion.

Answer 1

Answer:

The correct answer is: right; right.

Explanation:

During an economic expansion as people increase investment, the income and wealth held by the people increases. This will cause an increase in demand for bonds as people will look for ways to invest their increased income.  

This will cause the demand for the bonds curve to shift to the right. This rightward shift in the demand curve will increase bond prices. The supply of bonds increases during as the businesses want to take advantage of the increase in income and wealth and borrow from people and invest it in their business.