When the expected inflation rate increases,the real cost of borrowing ________ and bond supply ________,everything else held constant.
A)increases;increases
B)increases;decreases
C)decreases;increases
D)decreases;decreases

Question

Quizplus · Accepted Answer

When the expected inflation rate increases, the real cost of borrowing decreases because the nominal interest rate is fixed and inflation erodes the real value of money. As a result, borrowers are more willing to take loans, increasing the supply of bonds.

When the Expected Inflation Rate Increases,the Real Cost of Borrowing