Stocks and Bonds Are Traded in Separate Markets, and Interest

question 62

Essay

Stocks and bonds are traded in separate markets, and interest rates are set in bond (debt)markets. Why then does there seem to be an inverse relationship between the movements of stock prices and interest rates (they move in opposite directions)?

---

Definitions:

Consumer Surplus

The difference as marked by what consumers are prepared to spend on a good or service versus the actual payment made.

Market Demand

The total quantity of a good or service that all consumers in a market are willing and able to purchase at various prices.

Externalities

Costs or benefits that affect a party who did not choose to incur that cost or benefit.

Consumer Surplus

The difference in the total amount expected to be paid by consumers for a good or service and the actual payment made.