Question

Assume that the economy is in equilibrium. If aggregate demand decreases, nominal interest rates and bond prices will most likely change in which of the following ways?

Answer 1

Interest rates up and bond prices down.
Higher interest rates make borrowing more expensive and thus demand from money decreases. Bond prices are inversely related to interest rates. This is a weird question because interest rates, which are set by the government, cause the change in aggregate demand not the other way around