ECON 215 - Supply Curve Shifts

What factors cause the supply curve for bonds to shift?

Expected profitability of investment opportunities, expected inflation, and government budget conditions.

How does an increase in expected profitability of investments affect the supply of bonds?

Increases supply → supply curve shifts right.

How does an increase in expected inflation affect the supply of bonds?

Increases supply → supply curve shifts right because the real cost of borrowing falls.

How does a government budget deficit affect the supply of bonds?

Increases supply → supply curve shifts right as more bonds are issued to finance the deficit.

How does a government budget surplus affect the supply of bonds?

Decreases supply → supply curve shifts left as fewer bonds are issued.