Macro Economics and interest rates question

[cfalevel_1]

I have a very basic question regarding macro economics.

I was reading Stalla where they talk about Quantity of Money Demand (Qd) and Quantity of Money Supply(Qs).

According to stalla notes

When interest rates are very high Qd is less than Qs hence people will buy more bonds. An increased demand for bonds pushes bonds prices up and lower bond yields. Thus, the interest rate is pushed back to equilibrium level.

That means bond yields and nominal interest rates are same.??

Any explanation will be appreciated

 

[FisherSU]

Selling bonds is one way of conducting Open Market Policy and as such government issued bonds (and their yields) represent the prevailing market interest rate. To make things clear compare today's FED funds rate of 5.25% and yield on 10-year government bond of 4.68%. If you plot the two over lats 10 years the picture is even clearer. Think of bonds as of instruments through which you buy "interest rate" and that should answer your question.

 

[JoeyDVivre]

Hmmm... I don't think that open market operations, government issued bonds, Fed funds rates, or the relationship between 10-yr Tresaury rates and Fed funds rates are part of the question or part of any answer to the question.

For this question, I would say that nominal interest rates and bond yields are the same thing. All Stalla is telling you is that when interest rates are high, people don't want to borrow as much money as when interest rates are low. But if interest rates are high enough, they will put their savings into bonds. Lots of demand for bonds means that they will rise in price, thus dropping their yield. "Interest rates" in this question is some very broad imprecise thing about the cost of money.