Question

Suppose the public (households and businesses) expect an increase in inflation within the next 18 months and the central bank is willing to accommodate changes in the public's behavior.

Graphically show and explain the impact on the bond market using the supply and demand (aka Asset Demand Theory) framework of Interest Rate Determination found in chapter 5 of your textbook.

Be specific by explaining each of the components(independent variables) of the demand for and supply of bonds and then show graphically the situation described in the instructions..

Answer 1