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Unformatted text preview: supply curve to the right • Changes in general business conditions • Changes in expected inflation-increase in expected inflation shifts supply curve to the right c. Factors that shift bond demand • Wealth-shifts demand to the right • Expected inflation-decline in expected inflation shifts demand curve to the right • Expected returns and expected interest rates • Risk relative to alternatives-less risky, increase demand • Liquidity relative to alternatives-more liquid, increase demand d. Understanding changes in equilibrium bond prices and interest rates • When both curves shift in the same direction, the price can rise or fall IV.Why bonds are risky a. Default risk b. Inflation risk c. Interest-rate risk...
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This note was uploaded on 05/10/2010 for the course ECO 3223 taught by Professor Staff during the Spring '08 term at University of Central Florida.
- Spring '08
- Interest Rates