Figure 10.7 -Refer to Figure 10.7.A movement from point D to point C could be caused by A) a positive demand shock. B) an increase in the term premium investors expect in the future. C) an increase in the term structure effect. D) an increase in the expected rate of inflation.

Question

Quizplus · Accepted Answer

Movement from point D to point C indicates an increase in the interest rate. Such an increase in interest rates may be caused by an increase in the expected rate of inflation, which would reduce the purchasing power of borrowed money in the future. Therefore, option D is the best choice. Options A, B, and C are not related to the movement from point D to point C.

Figure 10.7 -Refer to Figure 10.7.A Movement from Point D to Point