The yield on romanian bonds or both price and yield

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Reference no: EM131305371

In 2010, Romania had been running large budget deficits. In an attempt to reduce the deficits, the Romanian government planned to reduce pensions to retired government workers. However, Romania's highest court ruled that the reductions were unconstitutional. According to an article in the Wall Street Journal, "Romanian bonds also tumbled after the court said that a 15% reduction in pensions ordered by the country's center-right government was illegal."

a. When the article reports that "Romanian bonds tumbled," what fell: the price of Romanian bonds, the yield on Romanian bonds, or both the price and the yield?

b. Why would the fact that Romania was unable to cut government spending as planned cause Romanian bonds to tumble?

Reference no: EM131305371

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