Final answer:
An increase in wealth raises demand for bonds, shifting the demand curve right and potentially increasing bond prices. Economic contraction can both increase bond demand due to their safety, raising prices, or decrease it if returns on bonds are expected to fall, leading to lower prices.
Step-by-step explanation:
An increase in wealth generally leads to a higher demand for assets, including bonds, as people have more financial resources to invest. This would be a demand-side effect, shifting the demand curve to the right, which could increase the price of bonds while the quantity demanded increases.
A contraction in economic activities can have a dual impact on bond demand. On one hand, it might increase demand for bonds, being considered safer investments during economic downturns, thus raising bond prices. On the other hand, it could decrease demand if investors expect lower returns from bonds due to falling interest rates in response to the economic contraction, leading to a decrease in bond prices.