Assume that a country’s government increases borrowing. What will most likely happen to the prices of previously issued bonds and the price level in the short run?

Bond price decrease while Price level Increase

Explanation: A bond is a contract between two parties, it is a debt security, under which the issuer ( government or business owners) owes the holders a debt and is obliged to pay them interest or to repay the principal at a later date, which is called the maturity date. Bonds is a means where the government or corporations secure loans from investors and pay them at an agreed date with interest.

In the instance a country’s government increases borrowing, it is safe to say the price of bonds will decrease while price level will increase in the short run.

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