Which scenario would likely lead to an increase in bond prices?

An increase in bond prices is often associated with a decrease in economic growth. This is because when economic growth is slowing or is expected to slow, investors tend to seek safer investments, such as bonds, rather than riskier assets like stocks. The increased demand for bonds drives prices up.

Furthermore, in a slowing economy, central banks may lower interest rates to stimulate growth, which can also lead to higher bond prices. Lower interest rates make existing bonds with higher fixed interest payments more attractive, resulting in increased demand and higher prices for those bonds.

In contrast, scenarios such as an increase in interest rates or a surge in inflation would generally lead to lower bond prices, as higher rates diminish the value of fixed payments from existing bonds, and inflation erodes purchasing power. Increased consumer spending typically signals a growing economy, which can lead to higher interest rates and thus lower bond prices.