1) Draw a supply/demand diagram of the market for "loan able funds" in the U.S. Use the "interest rate" as the "price" of loan able funds on your diagram. Show the effects of a rise in the expected inflation rate on your diagram.
2) Is your result in (1) consistent with the Demand/ Supply model of the effects of a rise in inflation expectations on the T-Bill market that I drew in this week's lecture notes? Describe [Hint: discuss the relationship among a T-Bill's price and the annual yield (or rate of interest) earned by an investor who buys that T-Bill and holds it until maturity]