An increase in expected inflation causes the supply of bonds to ________ and the supply curve to shift to the ________.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right

Question

Quizplus · Accepted Answer

An increase in expected inflation makes borrowing more attractive because firms and governments can pay back their loans with cheaper dollars in the future. This leads to an increase in the supply of bonds, which is represented by a shift to the right of the supply curve.

An Increase in Expected Inflation Causes the Supply of Bonds