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May 23, 2015

Homework Help: Marcoeconomics

Posted by David on Sunday, February 15, 2009 at 12:06pm.

According to the formula,
Bond price= y/r
so bond price has a inverse relationship with interest rate.i.e. interest rate increases, bond price decreases.
But why does it contradict with this demand-supply anysis: r(interest rate increases)--> returns from buying bonds increase-->cost of holding money increases-->asset demand for money decrease-->supply of bonds decreases-->PRICE OF BONDS INCREASES

what's wrong with the demand-supply anysis, thx!

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