Which of the following scenarios best illustrates the relationship between an increase in aggregate demand and its effect on nominal interest rates and bond prices?

When aggregate demand increases, it means that people and businesses want to buy more goods and services. This higher demand can lead to economic growth, which often makes lenders expect that businesses will earn more money in the future. As a result, they might raise interest rates because they want to charge more for loans, believing that borrowers will be able to pay it back with higher profits. For example, if a company wants to borrow money to expand its business, the increased demand can push up interest rates, making it more expensive for the company to borrow. Consequently, as interest rates rise, bond prices typically fall because investors will seek higher returns elsewhere, making existing bonds less attractive.