CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

An increase in real output will cause which of the following?
A. An increase in interest rates and an increase in bond prices
B. An increase in interest rates and a fall in bond prices
C. A decrease in interest rates and an increase in bond prices
Explanation: An increase in real output causes an increase in money demand, which causes a rise in interest rates. This, in turn, causes a fall in bond prices, which are inversely related to the interest rate.

User Contributed Comments 2

User Comment
cbb1 An increase in real GDP (output) causes an increase in the demand for money (the curve shifts to the right) not a change in the quantity of money demanded (movement on the existing curve). When the curve shifts right, interest rates must increase.
george2006 Under the supply side econmoic theory, real output (supply) increase will cause the demand to rise ---> interest rate increase --> bond value down.
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