Econ Ch 5

A business cycle expansion causes A) both bond demand and bond supply to shift right. B) both bond demand and bond supply to shift left. C) both demand to shift right and supply to shift left. D) both demand to shift left and supply to shift right

A

Along the supply curve for bonds, an increase in the price of bonds A) decreases the interest rate and increases the quantity on bonds supplied B) decreases the interest rate and decreases the quantity on bonds supplied C) increases the interest rate and increases the quantity on bonds supplied D) increases the interest rate and decreases the quantity on bonds supplied

A

An increase in the price level causes A) money demand to shift to the right and interest rates to increase B) money demand to shift to the left and interest rates to decrease C) the money supply to shift to the right and interest rates to decrease D) the money supply to shift to the left and interest rates to decrease

A

An increase in the riskiness of the stock causes A) the bond demand to shift right B) the bond demand to shift left C) the bond supply to shift right D) the bond supply to shift left

A

A decrease in the wealth in the economy causes A) bond demand to shift right, the price of bonds to rise, and interest rates to fall B) bond demand to shift left, the price of bonds to fall and interest rates to rise C) bond supply to shift right, the price of bonds to fall, and interest rates to rise D) bond supply to shift left, the price of bonds to rise, and interest rates to fall

B

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

B

Suppose there is an increase in the growth rate of the money supply. If the liquidity effect is smaller than the output, price level and expected inflation effects than in the long run interest rates A) remain unchanged when compared to their initial value B) rise when compared to their initial value C) fall compared to their initial value D) become unpredictable

B

What is the interest rate on a year-one discount bond that pays $1,000 at maturity, is held for the entire year, and purchase price is $955? A) 4.5% B) 4.7% C) 5.5% D) 9.5%

B

Which of the following effects from an increase in the money supply causes interest rates to decrease in the short run? A) the income effect B) the liquidity effect C) the expected inflation effect D) the price-level effect

B

Which of the following would cause the demand for long-term bonds to shift right? A) stock become less risky B) people expect interest rates to fall in the future C) brokerage firms reduce their commission on stock transactions D) people increase their expectations of inflation

B

An increase in expected inflation causes A) bond demand to shift left, bond supply to shift right, and interest rates to fall B) bond demand to shift right, bond supply to shift left, and interest rates to rise C) bond demand to shift left, bond supply to shift right, and interest rates to rise D) bond demand to shift right, bond supply to shift left, and interest rates to fall

C

In the long run, if the output, price-level, and expected inflation effects outweigh the liquidity effect to reduce interest rates the federal reserve should A) maintain the growth rate of the money supply B) increase the growth rate of the money supply C) decrease the growth rate of the money supply D) none of the above

C

In the theory of asset demand, which of the following will decrease the quantity demanded of an asset? A) an increase int he wealth of the buyer. B) and increase in the expected return on the asset relative to alternative assets C) an increase in the risk of the asset relative to alternative assets D) an increase in the liquidity of the asset relative to alternative assets

C

Suppose there is an increase in the growth rate of the money supply. If the liquidity effect is smaller than the income, price-level and expected inflation effects, and in inflationary expectations adjust slowly then in the short run interest rates A) remain unchanged B) rise C) fall D) become unpredictable

C

The price of bonds and the interest rate are? A) uncorrelated B) positively correlated C) negatively correlated D) either positively or negatively correlated depending on whether the market participant is a bond buyer or bond seller.

C

When an increase in expected inflation causes interest rates to rise, this is known as A) liquidity effect B) output effect C) Fisher effect D) deficit effect

C

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

D

In the liquidity preference framework interest rates are determined by the supply and demand for A) bonds B) stocks C) output D) money

D

Which of the following statements about the bond market is true? A) bond demand corresponds to willingness to lend B) bond supply corresponds to willingness to borrow C) the supply and demand of bonds are measured in terms of "stocks" of assets, so it can be considered an asset market approach to the determination of asset prices and returns D) all the the above are true

D

Which of the following will cause interest rates to rise? A) the stock market has become more volatile B) firms become pessimistic about the future profitability of new plant and equipment C) people reduce their expectations on inflation D) the government increases its budget deficit

D

An increase in the riskiness of bonds causes bond demand to increase, the price of bonds to rise and interest rates to fall.

F

If the price of bonds is below the equilibrium price, there will be an excess supply of bonds, and interest rates will rise.

F

In the liquidity preference framework, an increase in incomes, ceteris paribus, causes money demand to shift left and interest rates to fall.

F

The asset market approach emphasizes flows rather than stocks of asset to determine asset price.

F

The liquidity preference framework suggests that the interest rate is determined by the supply and demand for bonds.

F

according to the theory of asset demand an increase in the volatility of returns in the stock market decrease the quantity demanded for bonds.

F

A one-year discount bond for which the owner pays $937, holds it for the entire one year, and receives $1000 at maturity, generates an interest rate of 6.7%.

T

According to the theory of asset demand, an increase in expected returns in the stock market decreased the quantity demanded for bonds.

T

An increase in expected inflation decreases real returns at each price of bonds causing bond demand to shift left, bond supply to shift right, the price of bonds to fall and interest rates to rise.

T

An increase in the money supply other things help constant, causes interest rates to fall.

T

An increase the government's budget deficit shifts the supply of bonds to the right, decreases the price of bonds, and increases the interest rate.

T

If there is an increase in the growth rate of the money supply and the resulting liquidity effect is smaller than the combined income, price-level, and expected inflation effects, then the interest rate will eventually rise above the initial interest rate.

T

If there is an increase in the growth rate of the money supply, the resulting liquidity effect is smaller than the combined income, price-level, and expected inflation effects and inflationary expectations adjust quickly, then the interest rate will immediately rise and rise further over time.

T

The price of a bond and the interest rate are always negatively related for any type of bond, whether a discount or coupon bond.

T

When expected inflation rises causing interest rates to rise, we have seen a demonstration of the Fisher Effect.

T