Recall Application 2, "Increased Political Independence for the Bank of England Lowered Inflation Expectations," to
answer the following questions:
-According to the application, if the bonds that were not adjusted for inflation and the inflation adjusted bonds had the same yield, then:
A) people expect lower inflation.
B) people expect higher inflation.
C) people expect that bond yield equals zero.
D) people expect zero inflation.

Question

Quizplus · Accepted Answer

If the yields on inflation-adjusted bonds and non-inflation-adjusted bonds are the same, it implies that people expect zero inflation, as there is no additional yield required to compensate for inflation.