It is generally known that in a normally functioning economy with business cycles that bond prices go up with stock prices go down. That’s because bonds with their fixed rates then offer higher rates of return compared to stocks and are thus more desirable.
But (you knew there was a but) what about an economy not in equilibrium, say due to an external economic shortage from oil. When I think about it, I get two answers depending on how I think. Part of my thinks the original answer should still apply. Part of me thinks that an externally applied shortage should present such a drag on the economy that the risk in bond prices should drive their prices down, and the whole economy would go down the proverbial tubes. Which happens?
What happened in 1973?