An increase in aggregate demand typically results in higher _____, which in turn leads to lower bond prices due to the inverse relationship between interest rates and bond prices.

An increase in aggregate demand usually leads to higher overall economic activity, which can push up prices and wages. When the economy is doing well, central banks may decide to raise interest rates to keep inflation in check. Higher interest rates make borrowing more expensive, which affects how much people and businesses want to spend or invest. Because of this, bond prices drop; when interest rates rise, new bonds are issued at higher rates, making existing bonds with lower rates less attractive. For example, if a bond pays 3% interest and new bonds pay 5%, people will prefer the new bonds, causing the price of the older bond to fall.