Question

in the short run, which of the following would occur to bond prices and interest rates if a central bank sold bonds through open-market operations?

Answer 1

In the short run, bond prices would decrease, and interest rates would increase as a result of a central bank selling bonds through open-market operations. Option B is answer.

Step-by-step explanation:

When a central bank sells bonds through open-market operations, it results in increased bond supply in the market. According to the law of supply and demand, an increase in the supply of bonds puts downward pressure on bond prices. As a result, option B is correct—bond prices would decrease.

Simultaneously, the increase in bond yields, which moves inversely to bond prices, leads to higher interest rates. This relationship between bond prices and interest rates is a fundamental aspect of the fixed-income market. Therefore, when a central bank conducts bond sales, it triggers a short-term impact of lower bond prices and higher interest rates.

Option B is answer.

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Complete Question

In the short run, which of the following would occur to bond prices and interest rates if a central bank sold bonds through open-market operations?

A. Bond prices would increase, and interest rates would decrease.

B. Bond prices would decrease, and interest rates would increase.

C. Bond prices and interest rates would both increase.

D. Bond prices and interest rates would both decrease.

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Answer 2

In the short run, bond prices will decrease and interest rates will increase if a central bank sells bonds through open-market operations.

How is that so?

Central banks engage in free competition operations to regulate the supply of cash in circulation. The central bank will peddle bonds when it needs to reduce the money supply. This is due to the evidence that commerce bonds withdraw services from the economy, lowering the amount of services in circulation, making appropriating more expensive, and delaying business-related growth.

This decrease having a lot of money supply is usually guide a rise in interest rates. When bond prices fall, interest rates rise, and when bond prices rise, interest rates fall. Bond prices and interest rates have an opposite relationship. When interest rates rise, bond prices fall, and with the order reversed.

Complete Question Below:

In the short run, ________________ would occur to bond prices and interest rates if a central bank sold bonds through open-market operations?