1. Suppose an economy is passing through the expansionary phase of the business cycle. Using supply demand model of bonds, graphically examine.

• Impact on shift of demand and supply curves of the bonds
• Impact on price of bonds and expected interest rates.
• Based on your finding advice an investor, in such an economic condition, whether to invest in long-term bonds or short-term bonds and why? (4 points)

(Note: In case finding difficulty in drawing online graph, students can draw graph manually and can use scan copy.)