Econ 353 Chapter 5

Everything else held constant when real estate prices are expected to decrease.

The demand curve for bonds shifts to the right and the interest rate falls.

The demand for silver decreases, other things equal, when

The gold market is expected to boom.

If the Fed wants to permanently lower interest rates, then it should raise the rate of money growth if

The liquidity effect is large than the other effects.

The bond supply curve is ______ sloping, indicating an __________ relationship between the price and quantity supplied of bonds, everything else equal.

Upward, direct

When the interest rate on a bond is _____ the equilibrium interest rate, in the bond market there is excess _____ and the interest rate will _______

above, demand, fall

In the market for money, a rise in the price level causes the demand for money to ______ and the interest rate to _____ everyting else held constant.

increase, increase

The interest rate falls when either the demand for bonds _____ or the supply of bonds _______.

increases, decreases.

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 rates ______.

left, rises

The demand curve for bonds has the usual downward slope, indicating that at _____ prices of the bond, everything else equal the _____ is higher.

lower, quantity demanded

In Keyne's liquidity preference framework, individuals are assumed to hold their wealth in two forms

money and bonds

In the market for money, when real income______ the demand curve for money shifts to the _____ and the interest rate _____ everything else held constant.

rises, right, rises

In the Keynesian liquidity preference framework, an increase in the interest rate causes the demand curve for money to _____ everything else held constant.

stay where it is

When the price of a bond is above the equilibrium price, there is an excess ____ bonds and price will ______.

supply of, fall

When the growth rate of the money supply increases, interest rates end upbeing permanently lower if

the liquidity effect is larger than the other effects

In the figure above, a factor that could cause the demand for bonds to shift to the right is

Expectations of lower interest rates in the future.

In the figure above, a factor that could cause the demand for bonds to decrease is

A decrease in the expected return on bonds relative to other assets.

________ in the money supply in the market for money creates excess ______ money, causing interest rates to _________ everything else held constant.

A decreases, demand for, rise

In the figure above, the factor responsible for the decline in the interest rate is

An increase in the money supply

Pieces of property that serve as a store of value are called

Assets

If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will _________ and that of treasury bills will ____________.

Decrease, increase

In the market for money, a decline in the expected inflation rate causes the demand for money to ______ and the demand curve to shift to the _____ everything else held constant.

Decrease, left

When the expected inflation rate increases, the demand for bonds ______ the supply of bonds ______ and the interest rate ________ everything else held constant.

Decreases, increases, rises

In the market for money, an interest rate below equilibrium results in an excess _____ money and the interest rate will ______.

Demand for, rise

If people expect real estate prices to increase significantly the ______ curve for bonds will shift to the _____ everything else held constant.

Demand, left

If the interest rate on a bond is above the equilibrium interest rate, there is an excess ______ for bonds and the bond price will______

Demand, rise.

The bond supply and demand framework is easier to use when analyzing the effects of changes in______ while the liquidity preference framework provides a simpler analysis of the effects from changes in income, the price level, and the supply of ______.

Expected inflation, money

The figure above illistrates the effect of an increase money supply growth at the time period T0. From the figure, one can conclude that the

Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation.

If gold becomes acceptable as a medium of exchange, the demand for gold will ______ and the demand for bonds will _______, everything else held constant.

Increase, decrease

Holding everything else constant in the market for money, as the interest rate rises, the opportunity cost of holding money______ thus making money less desirable. So the quantity of money demanded falls.

Increases

Holding everything else equal, if the expected return on My Company stock increases from 10% to 15% and the expected return on That Company stock increases from 10% to 12% the demand for My Company stock

Increases because the expected return has increased relative to the alternative asset.

If there is an excess supply of money

Individuals buy bonds, causing interest rates to fall.

In the figure above, the prices of bonds would fall from P1 to P2 when

Inflation is expected to increase in the future

The demand for gold increases, other things equal, when

Interest rates are expected to rise

If prices in the bond market become more volatile, everything else held constant, the demand curve for bonds shift ______ and interest rates_______.

Left, rise

In the bond market, the bond demanders are the _______ and the bond suppliers are the ______.

Lenders, borrowers

Of the four effects on interest rates from an increase in the money supply, the one that works in the opposite direction of the other three is the:

Liquidity effect

The figure above illistrates the effect of an increase rate of money supply growth at time period T0. From the figure, one can conclude that the

Liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in the expected inflation.

The figure above illustrates the effect of an increased rate of money supply growth at the time period T0. From the figure, one can conclude that the

Liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.

A situation in which the quantity of bonds supplied exceeds the quantity of bonds demanded is called a condition of excess supply, because people want to sell ______ bonds than others want to buy, the price of bonds will _____.

More, fall

Holding all other factors constant, the quantity demanded of an asset is

Positively related to wealth

The supply curve for bonds has the usual upward slope, indicating that as the price ______ ceteris paribus, the ________ increases.

Rises, quantity supplied

If there is an excess demand for money, individuals _____ bonds, causing interest rates to _______.

Sell, rise

When the interest rate is above the equilibrium interest rate, there is an excess ____ money and the interest rate will ______

Supply of, fall

If the interest rate on a bond is below the equilibrium interest rate, there is an excess ________ of bonds and the bond price will _______.

Supply, fall.

In a business cycle expansion, the ______ of bonds increases and the _______ curve shifts to the ______ as business investments are expected to be more profitable, everything else held constant.

Supply, supply, right.

In the figure above, one factor not responsible for the decline in the demand for money is

an increase in income

______ in the money supply in the market for money creates excess demand for ______ causing interest rates to ______ everything else held constant.

an increase, bonds, fall.

In the market for money, when the price level falls, the ______ curve for nominal money_______ and interest rates ____ everything else held constant.

demand, decreases, falls