When the expected inflation rate increases,the demand for bonds ________,the supply of bonds ________,and the interest rate ________,everything else held constant.
A)increases;increases;rises
B)decreases;decreases;falls
C)increases;decreases;falls
D)decreases;increases;rises

Question

Quizplus · Accepted Answer

When the expected inflation rate increases, investors demand fewer bonds because the real return on bonds decreases, leading to a decrease in bond prices. Issuers, on the other hand, are more inclined to issue more bonds to lock in current rates before yields increase further, hence the supply of bonds increases. The increased supply and decreased demand for bonds lead to higher interest rates to equilibrate the bond market.

When the Expected Inflation Rate Increases,the Demand for Bonds ________,The