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18 February, 23:00

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?

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  1. 18 February, 23:51
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    Answer: 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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