Ch 5 Quiz ECON 3301

An increase in the interest rate

decreases the quantity of money demanded.

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

decreases; left

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

demand; left

If stock prices are expected to climb next year, everything else held constant, the ________ curve for bonds shifts ________ and the interest rate ________.

demand; left; rises

The bond demand curve is ________ sloping, indicating a(n) ________ relationship between the price and quantity demanded of bonds, everything else equal.

downward; inverse

An increase in the expected inflation rate will ________ the ________ for gold, ________ its price, everything else held constant.

increase; demand; increasing

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

increases; increases

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

inflation is expected to increase in the future.

The demand for houses decreases, all else equal, when

gold prices are expected to increase

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

increase; decrease; increase

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

increase; increase

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.

increase; right

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

increase; right

An increase in an asset's expected return relative to that of an alternative asset, holding everything else constant, ________ the quantity demanded of the asset.

increases

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

rise; Fisher effect

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

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

Factors that can cause the supply curve for bonds to shift to the right, everything else held constant, include

an expansion in overall economic activity.

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

assets

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

bonds; real

In the market for money, a lower level of income causes the demand for money to ________ and the interest rate to ________, everything else held constant.

decrease; decrease

When the interest rate is above the equilibrium interest rate, there is an excess ________ money and the interest rate will ________.

supply of; fall

An increase in the expected rate of inflation will ________ the expected return on bonds relative to the that on ________ assets, everything else held constant.

reduce; real

If the expected return on bonds increases, all else equal, the demand for bonds increases, the price of bonds ________, and the interest rate ________.

increases; decreases

If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is slow, then the

interest rate will initially fall but eventually climb above the initial level in response to an increase in money growth.

Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ________ and the interest rate ________.

left; rises

In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that the

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

In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that the

liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.

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

Everything else held constant, when prices in the art market become more uncertain

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