ECON343 Exam 1, Study Set 5

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In the figure above, a factor that could cause the supply of bonds to increase (shift to the right) is

expectations of more profitable investment opportunities.

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 ________.

fall; left

Everything else held constant, an increase in expected inflation, lowers the expected return on ________ compared to ________ assets.

bonds; real

Everything else held constant, when households save less, wealth and the demand for bonds ________ and the bond demand curve shifts ________.

decrease; left

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

demand; left

Higher government deficits ________ the supply of bonds and shift the supply curve to the ________, everything else held constant.

increase; right

When an economy grows out of a recession, normally the demand for bonds ________ and the supply of bonds ________, everything else held constant.

increases, increases

When the expected inflation rate increases, the real cost of borrowing ________ and bond supply ________, everything else held constant.

decreases, increases

During a recession, the supply of bonds ________ and the supply curve shifts to the ________, everything else held constant.

decreases; left

In the bond market, the bond demanders are the ________ and the bond suppliers are the ________.

lenders; borrowers

In the figure above, a factor that could cause the supply of bonds to shift to the right is

a business cycle expansion

When the interest rate changes,

it is because either the demand or supply curve has shifted.

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 ________.

left; rises

In the bond market, the market equilibrium shows the market-clearing ________ and market-clearing ________.

price, interest rate

Everything else held constant, when the inflation rate is expected to rise, interest rates will ________; this result has been termed the ________.

rise; Fisher effect

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.

Factors that can cause the supply curve for bonds to shift to the right include

an expansion in overall economic activity.

Deflation causes the demand for bonds to ________, the supply of bonds to ________, and bond prices to ________, everything else held constant.

increase; decrease; increase

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

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 ________.

rises; right


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