QUESTION 3 In July 2016, inflation rate in Malaysia was around 2%. The rate is expected to rise further in 2017. i) Using an appropriate diagram, explain what will happen to the equilibrium level of interest rates in response to the above situation based on: the demand-supply of bonds analysis the liquidity preference framework ii) Based on your conclusion on interest rate level in i) above, would you have made a worse or bad investment if you had invested in long-term bonds? Explain.

QUESTION 3 In July 2016, inflation rate in Malaysia was around 2%. The rate is expected to rise further in 2017. i) Using an appropriate diagram, explain what will happen to the equilibrium level of interest rates in response to the above situation based on: the demand-supply of bonds analysis the liquidity preference framework ii) Based on your conclusion on interest rate level in i) above, would you have made a worse or bad investment if you had invested in long-term bonds? Explain.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter15: Monetary Policy

Section: Chapter Questions

Problem 12QP

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