When the inflation rate is expected to increase,the real cost of borrowing declines at any given interest rate; as a result,the ________ bonds increases and the ________ curve shifts to the right.
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 cost of borrowing decreases, making it cheaper to borrow. This leads to an increase in the supply of bonds as borrowers are more willing to issue bonds, shifting the supply curve to the right.

When the Inflation Rate Is Expected to Increase,the Real Cost