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Unformatted text preview: If you general wealth goes up, it will affect the demand. You can buy currencies and Greece bonds, Russian bonds, if you want to as substitute assets. Expected inflation affect on both supply and demand. Because of inflation, the purchasing power will go down. If the inflation goes on, and my purchasing power decrease year after year. If I am experiencing inflation, and I don't want to receive payment? I do want to pay mortgage payment during the inflation period. Class 7--d: In the inflation environment, I may not want to hold the bond and receive my bond payment. The demand for the bond in the inflation, it will decreases, and the supply will increases. How would interest rate affect the prices? The risk on any financial instruments, I need to be compensated. Risk premium is the amount you compensated for taking the default risk...
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- Winter '12