If aggregate demand increases significantly, what is the likely effect on bond prices and nominal interest rates?

When aggregate demand increases significantly, it means that consumers and businesses are spending more money. This higher demand can lead to economic growth, which often causes inflation to rise. As inflation expectations increase, investors may want higher returns on their investments, leading to a decrease in bond prices because bonds pay fixed interest rates. When bond prices fall, nominal interest rates rise to attract buyers. For example, if more people want to borrow money to buy homes, the higher demand for loans can push interest rates up, making it more expensive to borrow.