Question

The market for bonds is initially described by the supply of bonds - S0, and the demand for bonds - D0, with the equilibrium price and quantity being P0 and Q0. Suppose that the expected return on bonds falls relative to other assets. In the bond market this will result in:

Answer 1

Answer: The bond demand curve, D, to shift to D2 (in attachment)

Explanation: A decrease in the return of buying bonds will lead to a decline in momentum in consumers. Less consumers will be interested in buying bonds, because of the elss returns on them. This will shift the demand curve D downwards and to the left. It will thus move to D2. The quantity and equilibrium price will decrease as a result.