When the price of a bond decreases, all else equal, the bond demand curve:

Question

BlackTom AI · Accepted Answer

A change in the bond’s price causes a movement along the demand curve rather than a shift of the curve itself.

Relevant concepts:
- The demand curve shows the relationship between price and quantity demanded, holding all other determinants constant (income/wealth, risk, expected returns, liquidity, policy).
- A "movement along" the curve happens when the price changes; a "shift" of the curve requires a change in a non-price determinant (e.g., investors become wealthier or perceive bonds as safer).

Step-by-step reasoning:
1. Start with the law of demand: when price falls, quantity demanded rises (inverse relationship between price and quantity). For bonds, a lower price makes the bond’s effective return (yield) higher for buyers, so more investors will want to buy at that lower price.
2. Because only the bond’s own price changed and all else is held equal, this increase in quantity demanded is represented as a movement downwards and to the right along the existing demand curve.
3. A shift of the demand curve (left or right) would require a change in non-price factors — for example, a change in expected future interest rates, investor wealth, or perceived risk of bonds — none of which is specified here.
4. Therefore the demand curve itself does not shift; the market moves to a new point on the same curve.

Why other choices are incorrect:
- "a. inverts" is not an economic concept in this context.
- "b. shifts left" would mean demand decreased for every price, which is not caused by a lower price.
- "c. shifts right" would indicate an increase in demand at every price due to non-price factors, not simply a price reduction.

Conclusion: The correct answer is d. does not shift. This matches the provided answer.

When the price of a bond decreases, all else equal, the bond demand curve:Single choice

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When the price of a bond decreases, all else equal, the bond demand curve:Single choice

Similar Questions

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