When the expected inflation rate increases,the demand for bonds ________,the supply of bonds ________,and the interest rate ________.
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 might increase the supply of bonds to lock in current rates before they rise further. Higher inflation expectations lead to higher interest rates to compensate for the decreased purchasing power over time.

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