Question

Suppose that an individual can hold her wealth in only two forms: money and bonds. A _______________ in the bond market would then imply that there is a ________________ in the money market.

Answer 1

Answer:

A shortage in the bond market would then imply that there is a surplus in the money market.

Explanation:

The bond market refers to a financial market new long-term debt investment can be issued by participants or where long-term debt investment can be can be bought and sold.

The money market can be described as a financial market where short-term debt investments can be bought and sold.

Since it is indicated in the qustion that the individual can hold her wealth in only money and bonds, it implies that it will result in a negative relationship between the fund in the bond market and the fund in the money market. That is when there is a shortage or decrease in one, there will be a surplus in the other.

Therefore, a shortage in the bond market would then imply that there is a surplus in the money market.