Question

If higher money growth is associated with higher future inflation, and if announced money growth turns out to be extremely high but is still less than the market expected, what do you think will happen to long-term bond prices?

Short answer

The interest rate and the price of bonds have a negative connection. As a result of the decrease in long-term interest rates, long-term bond prices are expected to rise.

Step-by-step solution

Inflation : 

It indicates the economy's rising trend. It increases the general level of prices while lowering the value of money over time.

Explanation : 

Inflation rises less than projected, lowering future short-term interest rates. A decrease in future short-term interest rates affects the future long-term interest rate at the same time. As a result, long-term interest rates would fall in the future.

The interest rate and the price of bonds have a negative connection. As a result of the decrease in long-term interest rates, long-term bond prices are expected to rise.