eco 029 2

1) A movement along the bond demand or supply curve occurs when ________ changes. A) bond price B) income C) wealth D) expected return

A

12) Everything else held constant, an increase in the liquidity of bonds results in a ________ in demand for bonds and the demand curve shifts to the ________. A) rise; right B) rise; left C) fall; right D) fall; left

A

17) In a business cycle expansion, the ________ of bonds increases and the ________ curve shifts to the ________ as business investments are expected to be more profitable. A) supply; supply; right B) supply; supply; left C) demand; demand; right D) demand; demand; left

A

In the bond​ market, the bond demanders are the​ ________ and the bond suppliers are the​ ________. A. ​lenders; borrowers B. ​borrowers; advancers C. ​borrowers; lenders D. ​lenders; advancers

A

In the bond​ market, the market equilibrium shows the market−clearing ​________ and market−clearing ​________. A. ​price; interest rate B. ​price; deposit C. interest​ rate; premium D. interest​ rate; deposit

A

In the market for​ money, an interest rate below equilibrium results in an excess​ ________ money and the interest rate will​ ________. A. demand​ for; rise B. supply​ of; rise C. demand​ for; fall D. supply​ of; fall

A

The demand curve for bonds has the usual downward​ slope, indicating that at​ ________ prices of the​ bond, everything else​ equal, the​ ________ is higher. A. ​lower; quantity demanded B. ​higher; quantity demanded C. ​lower; demand D. ​higher; demand

A

20) Higher government deficits ________ the supply of bonds and shift the supply curve to the ________, everything else held constant. A) increase; left B) increase; right C) decrease; left D) decrease; right

B

32) The interest rate falls when either the demand for bonds ________ or the supply of bonds ________. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases Answer: B

B

18) When the expected inflation rate increases, the real cost of borrowing ________ and bond supply ________, everything else held constant. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

C

35) When the prices of rare coins become volatile, the ________ curve for bonds shifts to the ________, everything else held constant. A) demand; right B) demand; left C) supply; right D) supply; left

A

40) If stock prices are expected to climb next year, everything else held constant, the ________ curve for bonds shifts ________ and the interest rate ________. A) demand; left; rises B) demand; right; rises C) demand; left; falls D) supply; left; rises

A

41) If prices in the bond market become more volatile, everything else held constant, the demand curve for bonds shifts ________ and interest rates ________. A) left; rise B) left; fall C) right; rise D) right; fall

A

2) When the price of a bond decreases, all else equal, the bond demand curve A) shifts right. B) shifts left. C) does not shift. D) inverts.

C

10) Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ________ and the interest rate ________. A) right; rises B) right; falls C) left; falls D) left; rises

D

13) Everything else held constant, when bonds become less widely traded, and as a consequence the market becomes less liquid, the demand curve for bonds shifts to the ________ and the interest rate ________. A) right; rises B) right; falls C) left; falls D) left; rises

D

15) Factors that decrease the demand for bonds include A) an increase in the volatility of stock prices. B) a decrease in the expected returns on stocks. C) a decrease in the inflation rate. D) a decrease in the riskiness of stocks.

D

21) Factors that can cause the supply curve for bonds to shift to the right include A) an expansion in overall economic activity. B) a decrease in expected inflation. C) a decrease in government deficits. D) a business cycle recession.

A

42) If brokerage commissions on stocks fall, everything else held constant, the demand for bonds ________, the price of bonds ________, and the interest rate ________. A) decreases; decreases; increases B) decreases; decreases; decreases C) increases; decreases; increases D) increases; increases; increases

A

The reduction of brokerage commissions for trading common stocks that occurred in 1975 caused the demand for bonds to​ ________ and the demand curve to shift to the​ ________. A. ​fall, left B. ​rise; right C. ​fall; right D. ​rise; left

A

The supply curve for bonds has the usual upward​ slope, indicating that as the price​ ________, ceteris​ paribus, the​ ________ increases. A. ​rises; quantity supplied B. ​falls; quantity supplied C. ​rises; supply D. ​falls; supply

A

_______ in the money supply creates excess​ ________ money, causing interest rates to​ ________, everything else held constant. A. A​ decrease; demand​ for; rise B. A​ decrease; supply​ of; fall C. An​ increase; demand​ for; fall D. An​ increase; supply​ of; rise

A

14) The reduction of brokerage commissions for trading common stocks that occurred in 1975 caused the demand for bonds to ________ and the demand curve to shift to the ________. A) fall; right B) fall, left C) rise; right D) rise; left

B

22) When the inflation rate is expected to increase, the ________ for bonds falls, while the ________ curve shifts to the right, everything else held constant. A) demand; demand B) demand; supply C) supply; demand D) supply; supply

B

26) Everything else held constant, during a business cycle expansion, the supply of bonds shifts to the ________ as businesses perceive more profitable investment opportunities, while the demand for bonds shifts to the ________ as a result of the increase in wealth generated by the economic expansion. A) right; left B) right; right C) left; left D) left; right

B

2) In Keynes's liquidity preference framework A) the demand for bonds must equal the supply of money. B) the demand for money must equal the supply of bonds. C) an excess demand of bonds implies an excess demand for money. D) an excess supply of bonds implies an excess demand for money.

D

23) When the expected inflation rate increases, the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises

D

39) Everything else held constant, when the government has higher budget deficits A) the demand curve for bonds shifts to the left and the interest rate rises. B) the demand curve for bonds shifts to the left and the interest rate falls. C) the supply curve for bonds shifts to the right and the interest rate falls. D) the supply curve for bonds shifts to the right and the interest rate rises.

D

6) Holding everything else constant, if interest rates are expected to increase, the demand for bonds ________ and the demand curve shifts ________. A) increases; right B) decreases; right C) increases; left D) decreases; left

D

9) Everything else held constant, an increase in the riskiness of bonds relative to alternative assets causes the demand for bonds to ________ and the demand curve to shift to the ________. A) rise; right B) rise; left C) fall; right D) fall; left

D

A lower level of income causes the demand for money to​ ________ and the interest rate to​ ________, everything else held constant. A. ​increase; increase B. ​increase; decrease C. ​decrease; increase D. ​decrease; decrease

D

How might a sudden increase in​ people's expectations of future real estate prices affect interest​ rates? A. Interest rates would decrease because real estate would have a relatively higher rate of return compared to​ bonds, which would cause the demand for bonds to decrease. B. Interest rates would increase because real estate would have a relatively lower rate of return compared to​ bonds, which would cause the demand for bonds to increase. C. Interest rates would decrease because real estate would have a relatively lower rate of return compared to​ bonds, which would cause the demand for bonds to increase. D. Interest rates would increase because real estate would have a relatively higher rate of return compared to​ bonds, which would cause the demand for bonds to decrease.

D

If the demand for bonds shifts to the​ left, the price of bonds A. ​decreases, and interest rates fall. B. ​increases, and interest rates fall. C. ​increases, and interest rates rise. D. ​decreases, and interest rates rise.

D

If there is an excess demand for​ money, individuals​ ________ bonds, causing interest rates to​ ________. A. ​buy; fall B. ​sell; fall C. ​buy; rise D. ​sell; rise

D

8) Everything else held constant, an increase in expected inflation, lowers the expected return on ________ compared to ________ assets. A) bonds; financial B) bonds; real C) real estate; financial D) real estate; real

B

A rise in the price level causes the demand for money to​ ________ and the interest rate to​ ________, everything else held constant. A. ​decrease; decrease B. ​increase; increase C. ​decrease; increase D. ​increase; decrease

B

If there is an excess supply of money A. individuals sell​ bonds, causing the interest rate to fall. B. individuals buy​ bonds, causing interest rates to fall. C. individuals sell​ bonds, causing the interest rate to rise. D. individuals buy​ bonds, causing interest rates to rise

B

When the interest rate on a bond is above the equilibrium interest​ rate, in the bond market there is excess​ ________ and the interest rate will​ ________. A. ​demand; rise B. ​demand; fall C. ​supply; rise D. ​supply; fall

B

37) Everything else held constant, when prices in the art market become more uncertain A) the demand curve for bonds shifts to the left and the interest rate rises. B) the demand curve for bonds shifts to the left and the interest rate falls. C) the demand curve for bonds shifts to the right and the interest rate falls. D) the supply curve for bonds shifts to the right and the interest rate falls.

C

38) Everything else held constant, when real estate prices are expected to decrease A) the demand curve for bonds shifts to the left and the interest rate rises. B) the demand curve for bonds shifts to the left and the interest rate falls. C) the demand curve for bonds shifts to the right and the interest rate falls. D) the supply curve for bonds shifts to the right and the interest rate falls.

C

Everything else held​ constant, an increase in expected​ inflation, lowers the expected return on​ ________ compared to​ ________ assets. A. real​ estate; financial B. ​bonds; financial C. ​bonds; real D. real​ estate; real

C

Everything else held​ constant, when stock prices become​ ________ volatile, the demand curve for bonds shifts to the​ ________ and the interest rate​ ________. A. ​less; left; does not change B. ​more; right; rises C. ​more; right; falls D. ​less; left; falls

C

Along the supply curve for​ bonds, a decrease in the price of bonds A. increases the interest rate and increases the quantity of bonds supplied. B. decreases the interest rate and decreases the quantity of bonds supplied. C. decreases the interest rate and increases the quantity of bonds supplied.decreases the interest rate and increases the quantity of bonds supplied. D. increases the interest rate and decreases the quantity of bonds supplied.increases the interest rate and decreases the quantity of bonds supplied.

D

During business cycle expansions when income and wealth are​ rising, the demand for bonds​ ________ and the demand curve shifts to the​ ________, everything else held constant. A. ​falls; left B. ​falls; right C. ​rises; left D. ​rises; right

D

Everything else held​ constant, when bonds become less widely​ traded, and as a consequence the market becomes less​ liquid, the demand curve for bonds shifts to the​ ________ and the interest rate​ ________. A. ​right; rises B. ​right; falls C. ​left; falls D. ​left; rises

D

28) When an economy grows out of a recession, normally the demand for bonds ________ and the supply of bonds ________, everything else held constant. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

A

43) If the expected return on bonds increases, all else equal, the demand for bonds increases, the price of bonds ________, and the interest rate ________. A) increases; decreases B) increases; increases C) decreases; decreases D) decreases; increases

A

5) Everything else held constant, if interest rates are expected to fall in the future, the demand for long-term bonds today ________ and the demand curve shifts to the ________. A) rises; right B) rises; left C) falls; right D) falls; left

A

19) An increase in the expected inflation rate causes the supply of bonds to ________ and the supply curve to shift to the ________, everything else held constant. A) increase; left B) increase; right C) decrease; left D) decrease; right

B

27) When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises

B

29) Deflation causes the demand for bonds to ________, the supply of bonds to ________, and bond prices to ________, everything else held constant. A) increase; increase; increase B) increase; decrease; increase C) decrease; increase; increase D) decrease; decrease; increase

B

1) In Keynes's liquidity preference framework, individuals are assumed to hold their wealth in two forms A) real assets and financial assets. B) stocks and bonds. C) money and bonds. D) money and gold.

C

16) During a recession, the supply of bonds ________ and the supply curve shifts to the ________, everything else held constant. A) increases; left B) increases; right C) decreases; left D) decreases; right

C

3) During business cycle expansions when income and wealth are rising, the demand for bonds ________ and the demand curve shifts to the ________, everything else held constant. A) falls; right B) falls; left C) rises; right D) rises; left

C

3) In Keynes's liquidity preference framework, if there is excess demand for money, there is A) an excess demand for bonds. B) equilibrium in the bond market. C) an excess supply of bonds. D) too much money.

C

Everything else held​ constant, when the government has higher budget deficits A. the demand curve for bonds shifts to the left and the interest rate falls. B. the supply curve for bonds shifts to the right and the interest rate falls. C. the supply curve for bonds shifts to the right and the interest rate rises. D. the demand curve for bonds shifts to the left and the interest rate rises

C

Holding everything else​ constant, if interest rates are expected to​ increase, the demand for bonds​ ________ and the demand curve shifts​ ________. A. ​decreases; right B. ​increases; right C. ​decreases; left D. ​increases; left

C

If the price of bonds is below the equilibrium​ price, there occurs an excess A. supply of​ bonds, the price of bonds will​ rise, and the interest rate will fall. B. demand for​ bonds, the price of bonds will​ fall, and the interest rate will rise. C. demand for bonds, the price of bonds will rise, and the interest rate will fall D. supply of bonds, the price of bonds will fall, and the interest rate will rise.

C

When the prices of rare coins become​ volatile, the​ ________ curve for bonds shifts to the​ ________, everything else held constant. A. ​supply; right B. ​demand; left C. ​demand; right D. ​supply; left

C

When the wealth of individuals decreases​, A. both the price of bonds and interest rates decrease B. the price of bonds increases while the interest rates decrease C. the price of bonds decreases while the interest rates increase D. both the price of bonds and interest rates increase.

C

24) Everything else held constant, when the inflation rate is expected to rise, interest rates will ________; this result has been termed the ________. A) fall; Keynes effect B) fall; Fisher effect C) rise; Keynes effect D) rise; Fisher effect

D

31) When the interest rate changes, A) the demand curve for bonds shifts to the right. B) the demand curve for bonds shifts to the left. C) the supply curve for bonds shifts to the right. D) it is because either the demand or the supply curve has shifted.

D

4) Everything else held constant, when households save less, wealth and the demand for bonds ________ and the bond demand curve shifts ________. A) increase; right B) increase; left C) decrease; right D) decrease; left

D

In a business cycle​ expansion, the​ ________ of bonds increases and the​ ________ curve shifts to the​ ________ as business investments are expected to be more profitable. A. ​supply; supply; left B. ​demand; demand; right C. ​demand; demand; left D. ​supply; supply; right

D

What will happen to interest rates if the public suddenly expects a large increase in stock​ prices? A. Interest rates will fall because the expected increase in stock prices raises the liquidity of stocks relative to bonds and so the demand for bonds decreases B. Interest rates will rise because the expected increase in stock prices raises the liquidity of stocks relative to bonds and so the demand for bonds decreases C. Interest rates will fall because the expected increase in stock prices raises the expected return on stocks relative to bonds and so the demand for bonds decreases D. Interest rates will rise because the expected increase in stock prices raises the expected return on stocks relative to bonds and so the demand for bonds decreases

D

25) The economist Irving Fisher, after whom the Fisher effect is named, explained why interest rates ________ as the expected rate of inflation ________, everything else held constant. A) rise; increases B) rise; stabilizes C) fall; stabilizes D) fall; increases

A

7) Holding the expected return on bonds constant, an increase in the expected return on common stocks would ________ the demand for bonds, shifting the demand curve to the ________. A) decrease; left B) decrease; right C) increase; left D) increase; right

A

11) Everything else held constant, when stock prices become ________ volatile, the demand curve for bonds shifts to the ________ and the interest rate ________. A) more; right; rises B) more; right; falls C) less; left; falls D) less; left; does not change

B

36) If people expect real estate prices to increase significantly, the ________ curve for bonds will shift to the ________, everything else held constant. A) demand; right B) demand; left C) supply; left D) supply; right

B

44) If real estate prices are expected to drop, all else equal, the demand for bonds ________ and the interest rate_______. A) increases; rises B) increases; falls C) decreases; rises D) decreases; falls

B

What effect will a sudden increase in the volatility of gold prices have on interest​ rates? A. Interest rates will increase because bonds will become relatively less​ risky, which increases the demand for bonds B. Interest rates will decrease because bonds will become relatively less​ risky, which increases the demand for bonds C. Interest rates will decrease because bonds will become relatively more​ risky, which decreases the demand for bonds D. Interest rates will increase because bonds will become relatively more​ risky, which decreases the demand for bonds

B

What will happen to interest rates if prices in the bond market become more​ volatile? A. When bond prices become more​ volatile, bonds become riskier and the demand for bonds will​ fall, which causes interest rates to fall B. When bond prices become more​ volatile, bonds become riskier and the demand for bonds will​ fall, which causes interest rates to rise C. When bond prices become more​ volatile, bonds become riskier and the demand for bonds will​ rise, which causes interest rates to fall D. When bond prices become more​ volatile, bonds become riskier and the demand for bonds will​ rise, which causes interest rates to rise

B

A business cycle expansion increases​ income, causing money demand to​ ________ and interest rates to​ ________, everything else held constant. A. ​increase; decrease B. ​decrease; decrease C. ​increase; increase D. ​decrease; increase

C