An increase in which of the following factors increases the...

An increase in which of the following factors increases the demand for a bond? Check all that apply: Expected inflation Expected future interest rate Liquidity relative to other assets Wealth Risk relative to other assets

Transcript

00:01 So here we're thinking about the market for loanable funds, right? let me sketch that, right? it's a story about funds and the real interest rate are, right? because that's the rate of return on funds.

00:14 We have an upward sloping supply curve and a downward sloping demand curve.

00:19 We usually think of the supply curve as households, people who are saving money, and we usually think of the demand as being firms and households, right? this is firms who want to borrow money to buy factories, families who want to borrow money to buy a house.

00:35 And we want to think about the supply of funds, right? which of these is going to influence the supply of funds, right? so one, perceived riskiness of investments less risky.

00:56 The key here is that this investments is being done by firms, right? this is going to affect the demand, not the supply.

01:09 When firms feel like it's a better time to build a factory, firms borrow money to build factories.

01:16 That increases the demand for funds, right? more people are going to want to invest.

01:19 They're going to want funds.

01:22 Two, expected inflation goes up.

01:30 This is not going to do it.

01:32 This is not going to do it.

01:34 And the key thing here is that it's the real rate, right? this does not affect anything here.

01:46 The market for funds is based upon the real rate, and the real rate is independent of the expected inflation.

01:56 This only affects the nominal rate.

01:59 But when people make investment and savings decisions, they care about the real rate of return, not the nominal rate...

Question

An increase in which of the following factors increases the demand for a bond? Check all that apply: Expected inflation Expected future interest rate Liquidity relative to other assets Wealth Risk relative to other assets

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