When the inflation rate is expected to increase,the expected return on bonds relative to real assets falls for any given interest rate; as a result,the ________ bonds falls and the ________ curve shifts to the left.
A) demand for; demand
B) demand for; supply
C) supply of; demand
D) supply of; supply

Question

Quizplus · Accepted Answer

When inflation is expected to increase, the real value of the fixed payments from bonds decreases, making them less attractive compared to real assets. This leads to a decrease in the demand for bonds, not a change in their supply. Therefore, the demand curve for bonds shifts to the left.

When the Inflation Rate Is Expected to Increase,the Expected Return