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26. Explain how excessive money supply growth by the central bank may lead to higher bond yields in the market.
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Excessive money supply growth, will make rise in the price level and inflation rate soars high. It leads to the decrease in the value of purchasing power of money. It will make investors to demand higher yield so that the reduction in purchasing power is compensated by the higher return before making investments in the bond. So, in the market, bond issuers have to give higher yield to make the investors buy the bonds.

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