20 shifts in bond supply supply of exp. bonds profits (shift rt.) a change in expected profitsaffects incentives to expand productionsupply ofbonds(shift rt.)exp.profitsexp. economic expansion shifts bond supply rt.
21 supply of exp. bonds inflation (shift rt.) a change in expected inflationrising inflation decreases real cost of borrowingsupply ofbonds(shift rt.)exp.inflation
22 supply of bonds deficits (shift rt.) a change in government borrowing deficits increase Treasury issuessurpluses decrease Treasury issuessupply ofbonds(shift rt.)deficits
23 demand for bonds= supply of loanable fundssupply of bonds= demand for loanable funds
24 C. Equilibrium interest rates changes when bond demand shifts,and/or bond supply shiftscauses of shifts cause interest rates to change
25 Example 1: the Fisher effect expected inflation 3%
26 exp. inflation rises to 4% bond demand-- real return declines-- Bd decreasesbond supply-- real cost of borrowing declines-- Bs increases