What is deflation

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Assignment:

In late 2008 and early 2009, many feared that the US economy would experience deflation.

a. What is deflation and how does deflation affect the real interest rate, holding constant the nominal rate?

b. Explain the effect of expected deflation on the supply curve of bonds.

c. Explain the effect of expected deflation on the demand curve of bonds.

d. Use a graph of the bond market to show how fears of deflation would affect bond yields.

Reference no: EM133662232

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