When expected inflation increases,investors ________ their demand for bonds because,for each nominal interest rate,the higher the inflation rate,the ________ the real interest rate investors will receive.
A) increase; higher
B) increase; lower
C) reduce; higher
D) reduce; lower

Question

Quizplus · Accepted Answer

When expected inflation increases, investors reduce their demand for bonds because, for each nominal interest rate, the higher the inflation rate, the lower the real interest rate investors will receive. This means that investors will receive a lower return relative to the loss in purchasing power caused by inflation.

When Expected Inflation Increases,investors ________ Their Demand for Bonds Because,for