I was asked to make this video by a friend who said they remained unsure as to what the difference between monetary and fiscal policy were, and were pretty sure the terms were being used as cover by those in the media making use of them. So, this is my explanation of what these two terms mean.
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Can you please elaborate on the comment that increase in the price of the bonds drives the interest rate down.
Thank you
If the interest rate is fixed and the price goes up the efcef8uvce interest rate goes down
Suppose a bond has a nominal return of 10% and costs £1
Then the price doubles to £2 but the return remains fixed at 10p per annum
The interest rate falls to 5%
Just one thing I’m not clear about Richard – how does the Government buying back bonds increase their price for everyone else?
Many thanks
Jon
Because buying them back forces up the price by increasing market demand
Makes sense. Thanks Richard.
Jon