Eco 29 Chapter 5

What will happen to interest rates if prices in the bond market become more volatile?

Bonds become riskier and the demand for bonds will fall, which causes interest rates to rise.

When an individual or institution buys a corporate bond in the primary market:

she is making a loan to the corporation issuing the bond

What effect will a sudden increase in the volatility of gold prices have on interest rates?

Interest rates will decrease because bonds will become relatively less risky, which increases the demand for bonds.

What will happen to interest rates if the public suddenly expects a large increase in stock prices?

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.

How might a sudden increase in peoples expectations of future real estate prices affect interest rates?

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.

If the next chair of the federal reserve board has a reputation for advocating an even slower rate of money growth than the current chair, what will happen to interest rates?

Slower money growth will lead to a liquidityy effect, which will raise interest rates; howe, the lower income, price level, and inflation will tent to lower interest rates.

Will there be an effect on interest rates if brokerage commissions on stocks fall?

Yes, interest rates would rise because stocks become more liquid than before, which would reduce the demand for bonds.

When the price level falls, the _________ curve for nominal money _______, and interest rates ________.

demand, decreases, falls

When the federal government sells a treasury bond in the primary market via treasury auction, it is:

seeking to finance government spending as an alternative to raising taxes.