In July 2016, inflation rate in Malaysia was around 2%. The rate is expected to rise further in 2017.

i)Using an appropriate diagram, explain what will happen to the equilibrium level of interest rates in response to the above situation based on:

(a) the demand-supply of bonds analysis

(b) the liquidity preference framework

ii)Based on your conclusion on interest rate level in i) above, would you have made a worse or bad investment if you had invested in long-term bonds? Explain.