How is the interest rate falling concept the same in one situation  as when a greater supply of loans puts downward pressure on interest rates, or

as when an excess of money forces people to bid up the prices of bonds and cause the interest rates to fall? how are these two the same if they sound extremely different?

Expert Answers

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These are really not all that different.  Think about what it means to buy a bond.  When a company sells bonds, it is borrowing money.  When you buy a bond from a company, you are lending it money.

So when people buy more bonds, they are lending more money to companies.  This means that the supply of money to be loaned is going up.  When the supply of money goes up, there is pressure on the interest rates that forces them to go down.

So it's really just another way of saying the same thing.  The idea of people buying more bonds is just a more detailed and more limited way of talking about it.

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