6 (15%) a Use the supply and demand analysis of the bonds market to graphically show the net effect of an increase in expected inflation followed by a business cycle expansion with growing wealth and income. (5%) 2 b What happens to the equilibrium interest rate? Why? (Hint: The change might be ambiguous) (5%) c What does the Liquidity Preference Framework predict? (5%) d Suppose there is an increase in money supply. How would this solve the different predictions in b) and c)? (5%)