Econ 29 Chapter 5
If the price of bonds is below the equilibrium price, there occurs an excess
Demand for bonds, the price of bonds will rise and the interest rates will fall
In the market for money, an interest rate below equilibrium results in an excess ________ money and the interest rate will ________.
demand for; rise
In the bond market, the bond demanders are the ________ and the bond suppliers are the ________.
lenders; borrowers
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, when stock prices become ________ volatile, the demand curve for bonds shifts to the ________ and the interest rate ________.
more; right; falls
In the bond market, the market equilibrium shows the market clearing ________ and market clearing ________.
price; interest rate
The supply curve for bonds has the usual upward slope, indicating that as the price ________, ceteris paribus, the ________ increases.
rises; quantity supplied
During business cycle expansions when income and wealth are rising, the demand for bonds ________ and the demand curve shifts to the ________, everything else held constant.
rises; right
If there is an excess demand for money, individuals ________ bonds, causing interest rates to ________.
sell; rise
In a business cycle expansion, the ________ of bonds increases and the ________ curve shifts to the ________ as business investments are expected to be more profitable.
supply; supply; right
________ in the money supply creates excess ________ money, causing interest rates to ________, everything else held constant.
A decrease; demand for; rise
Along the supply curve for bonds, a decrease in the price of bonds
Increases the interest, decreases the quantity of bonds supplied
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 people's 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.
What will happen to interest rates if prices in the bond market become more volatile?
When bond prices become more volatile, bonds become riskier and the demand for bonds will fall, which causes interest rates to rise
If the supply of bonds shifts to the right, the price of bonds , and the interest rate . When the wealth of individuals decreases
decreases, increases,
The president of the United States announces in a press conference that he will fight the higher inflation rate with a new anti-inflation program. Predict what will happen to interest rates if the public believes him. As a result of the president's announcement, people's expectations of inflation will , which causes the demand for bonds to shift to the . However, the lower expected inflation rate causes the cost of borrowing to , so the supply of bonds will , which causes the supply curve for bonds to shift to the . The impact of this change in bond demand and supply will cause equilibrium interest rates to .
fall, right, rise, decrease, left, decrease
If there is an excess supply of money
individuals buy bonds, causing interest rates to fall.
Everything else held constant, when the government has higher budget deficits
the supply curve for bonds shifts to the right and the interest rate rises.
Everything else held constant, an increase in expected inflation, lowers the expected return on ________ compared to ________ assets.
bonds; real
A lower level of income causes the demand for money to ________ and the interest rate to ________, everything else held constant.
decrease; decrease
If the demand for bonds shifts to the left, the price of bonds
decreases, and interest rates rise.
Holding everything else constant, if interest rates are expected to increase, the demand for bonds ________ and the demand curve shifts ________.
decreases; left
When the interest rate on a bond is above the equilibrium interest rate, in the bond market there is excess ________ and the interest rate will ________.
demand; fall
When the prices of rare coins become volatile, the ________ curve for bonds shifts to the ________, everything else held constant.
demand; right
The reduction of brokerage commissions for trading common stocks that occurred in 1975 caused the demand for bonds to ________ and the demand curve to shift to the ________.
fall, left
A business cycle expansion increases income, causing money demand to ________ and interest rates to ________, everything else held constant.
increase; increase
A rise in the price level causes the demand for money to ________ and the interest rate to ________, everything else held constant.
increase; increase
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
