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Explain Why Bond Prices Fluctuate in Response to Changing Interest

question 85

Essay

Explain why bond prices fluctuate in response to changing interest rates. What adverse effect might occur if bond prices remain fixed prior to their maturity?


Definitions:

Short Run

A period in economics where the quantities of some inputs or resources cannot be changed.

Unemployment

A situation where individuals who are capable of working and willing to work at prevailing wage rates cannot find employment.

Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, subsequently eroding purchasing power.

Friedman

Refers to Milton Friedman, a prominent economist known for his work on monetarism, advocating for free markets and a limited role of government in the economy.

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