ECON 2035 Chapter 5
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
Everything else held constant, if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent, then the expected return of holding RST stock ________ relative to XYZ stock and demand for XYZ stock ________.
- falls - rises
Everything else held constant, if the expected return on U.S. Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds ________ relative to U.S. Treasury bonds and the demand for corporate bonds ________.
- falls - rises
If the expected return on bonds increases, all else equal, the demand for bonds increases, the price of bonds ________, and the interest rate ________.
- increase - decrease
Deflation causes the demand for bonds to ________, the supply of bonds to ________, and bond prices to ________, everything else held constant.
- increase - decrease - increase
If real estate prices are expected to drop, all else equal, the demand for bonds ________ and the interest rate_______.
- increase - falls
If wealth increases, the demand for stocks _____ and that of long term bonds ____.
- increases - increases
Holding the expected return on bonds constant, an increase in the expected return on common stocks would ________ the demand for bonds, shifting the demand curve to the ________.
- decrease - left
Pieces of property that serve as a store of value are called:
assets
A movement along the bond demand or supply curve occurs when ________ changes.
bond price
Of the four factors that influence asset demand, which factor will cause the demand for all assets to increase when it increases, everything else held constant?
wealth
In the 1990s Japan had the lowest interest rates in the world due to a combination of
deflation and recession
When the price of a bond decreases, all else equal, the bond demand curve
does not shift
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 prices in the art market become more uncertain, A) the demand curve for bonds shifts to the left and the interest rate rises. B) the demand curve for bonds shifts to the left and the interest rate falls. C) the demand curve for bonds shifts to the right and the interest rate falls. D) the supply curve for bonds shifts to the right and the interest rate falls.
the demand curve for bonds shifts to the right and the interest rate falls.
Everything else held constant, when real estate prices are expected to decrease A) the demand curve for bonds shifts to the left and the interest rate rises. B) the demand curve for bonds shifts to the left and the interest rate falls. C) the demand curve for bonds shifts to the right and the interest rate falls. D) the supply curve for bonds shifts to the right and the interest rate falls.
the demand curve for bonds shifts to the right and the interest rate falls.
The demand for silver decreases, other things equal, when
the gold market is expected to boom
The demand for Picasso paintings rises (holding everything else equal) when
treasury securities become riskier
You would be less willing to purchase U.S. Treasury bonds, other things equal, if
gold becomes more liquid
The demand for houses decreases, all else equal, when
gold prices are expected to increase
Holding everything else constant, A) if asset A's risk rises relative to that of alternative assets, the demand will increase for asset A. B) the more liquid is asset A, relative to alternative assets, the greater will be the demand for asset A. C) the lower the expected return to asset A relative to alternative assets, the greater will be the demand for asset A. D) if wealth increases, demand for asset A increases and demand for alternative assets decreases.
he more liquid is asset A, relative to alternative assets, the greater will be the demand for asset A.
The demand for gold increases, other things equal, when
interest rates are expected to rise
When the interest rate changes, A) the demand curve for bonds shifts to the right. B) the demand curve for bonds shifts to the left. C) the supply curve for bonds shifts to the right. D) it is because either the demand or the supply curve has shifted.
it is because either the demand or the supply curve has shifted
Holding all other factors constant, the quantity demanded of an asset is A) positively related to wealth. B) negatively related to its expected return relative to alternative assets. C) positively related to the risk of its returns relative to alternative assets. D) negatively related to its liquidity relative to alternative assets.
positively related to wealth
Everything else held constant, a decrease in wealth:
reduces the demand for silver
You would be more willing to buy AT&T bonds (holding everything else constant) if
the brokerage commissions on bond sales become cheaper
Everything else held constant, when the government has higher budget deficits A) the demand curve for bonds shifts to the left and the interest rate rises. B) the demand curve for bonds shifts to the left and the interest rate falls. C) the supply curve for bonds shifts to the right and the interest rate falls. D) the supply curve for bonds shifts to the right and the interest rate rises.
the supply curve for bonds shifts to the right and the interest rate rises.
A decrease in the brokerage commissions in the housing market from 6% to 5% of the sales price will shift the ________ curve for bonds to the ________, everything else held constant.
- demand - left
If people expect real estate prices to increase significantly, the ________ curve for bonds will shift to the ________, everything else held constant.
- demand - left
During a recession, the supply of bonds ________ and the supply curve shifts to the ________, everything else held constant.
- decreases - left
Holding everything else constant, if interest rates are expected to increase, the demand for bonds ________ and the demand curve shifts ________.
- decreases - left
When the expected inflation rate increases, the real cost of borrowing ________ and bond supply ________, everything else held constant.
- decreases - increases
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 interest rate on a bond is _____ the equilibrium interest rate, in the bond market there is excess _____ and the interest rate will ______.
- above - demand - fall
If the price of bonds is set _____ the equilibrium price, the quantity of bonds demanded exceeds the quantity of bonds supplied, a condition called excess _____.
- below - demand
When the price of a bond is ______ the equilibrium price, there is an excess demand for bonds and price will _____.
- below - rise
Everything else held constant, an increase in expected inflation, lowers the expected return on ________ compared to ________ assets.
- bonds - real
If the price of gold becomes less volatile, then, other things equal, the demand for stocks will ________ and the demand for antiques will ________.
- decrease - decrease
If brokerage commissions on stocks fall, everything else held constant, the demand for bonds ________, the price of bonds ________, and the interest rate ________.
- decrease - decrease - increase
If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ________ and that of Treasury bills will ________.
- decrease - increase
Everything else held constant, when households save less, wealth and the demand for bonds ________ and the bond demand curve shifts ________.
- decrease - left
When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises
- decreases - decreases - falls
If fluctuations in interest rates become smaller, then, other things equal, the demand for stocks ________ and the demand for long-term bonds ________.
- decreases - increases
Everything else held constant, if the expected return on U.S. Treasury bonds falls from 10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock ________ relative to U.S. Treasury bonds and the demand for GE stock
- rises - rises
If there interest rate on a bond is below the equilibrium interest rate, there is an excess ______ of bonds and the bond price will ______.
- supply - fall
When the government has a surplus, as occurred in the late 1990s, the ________ curve of bonds shifts to the ________, everything else held constant.
- supply - left
In a business cycle expansion, the ________ of bonds increases and the ________ curve shifts to the ________ as business investments are expected to be more profitable. A) supply; supply; right B) supply; supply; left C) demand; demand; right D) demand; demand; left
- supply - supply - right
When the price of a bond is above the equilibrium price, there is an excess ____ bonds and price will _____.
- supply of - fall
The bond supply curve is _____ sloping, indicating a(n) _______ relationship between the price and quantity supplied of bonds.
- upward - direct
A situation in which the quantity of bonds supplied exceeds the quantity of bonds demanded is called a condition of excess supply; because people want to sell _____ bonds than others want to buy, the price of bonds will _____.
- more - fall
When the expected inflation rate increases, the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises
- decreases - increases - rises
If stock prices are expected to climb next year, everything else held constant, the ________ curve for bonds shifts ________ and the interest rate ________. A) demand; left; rises B) demand; right; rises C) demand; left; falls D) supply; left; rises
- demand - left - rises
When rare coin prices become volatile, the ________ curve for bonds shifts to the ________, everything else held constant.
- demand - right
If the interest rate on a bond is above the equilibrium interest rate, there is an excess _____ for bonds and the bond price will _____.
- demand - rise
When the inflation rate is expected to increase, the ________ for bonds falls, while the ________ curve shifts to the right, everything else held constant.
- demand - supply
The bond demand curve is ______ sloping, indicating a(n) ______ relationship between the price and quantity demanded of bonds.
- downward - inverse
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, if the expected return on ABC stock rises from 5 to 10 percent and the expected return on CBS stock is unchanged, then the expected return of holding CBS stock ________ relative to ABC stock and the demand for CBS stock ________.
- falls - falls
If gold becomes acceptable as a medium of exchange, the demand for gold will ________ and the demand for bonds will ________, everything else held constant.
- increase - decrease
If housing prices are expected to increase, then, other things equal, the demand for houses will ________ and that of Treasury bills will ________.
- increase - decrease
If brokerage commissions on bond sales decrease, then, other things equal, the demand for bonds will ________ and the demand for real estate will ________.
- 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
The interest rate falls when either the demand for bonds ________ or the supply of bonds ________.
- increases - decreases
When an economy grows out of a recession, normally the demand for bonds ________ and the supply of bonds ________, everything else held constant.
- increases - increases
If prices in the bond market become more volatile, everything else held constant, the demand curve for bonds shifts ________ and interest rates ________.
- left - rise
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
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 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 ________. A) more; right; rises B) more; right; falls C) less; left; falls D) less; left; does not change
- more - right - falls
In the bond market, the market equilibrium shows the market-clearing _____ and the market clearing _____.
- price - interest rate
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
Everything else held constant, during a business cycle expansion, the supply of bonds shifts to the ________ as businesses perceive more profitable investment opportunities, while the demand for bonds shifts to the ________ as a result of the increase in wealth generated by the economic expansion.
- right - right
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, an increase in the liquidity of bonds results in a ________ in demand for bonds and the demand curve shifts to the ________.
- rise - right
The economist Irving Fisher, after whom the Fisher effect is named, explained why interest rates ________ as the expected rate of inflation ________, everything else held constant.
- rises - increases
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
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
Factors that decrease the demand for bonds include A) an increase in the volatility of stock prices. B) a decrease in the expected returns on stocks. C) a decrease in the inflation rate. D) a decrease in the riskiness of stocks.
a decrease in the riskiness of bonds
Factors that can cause the supply curve for bonds to shift to the right include A) an expansion in overall economic activity. B) a decrease in expected inflation. C) a decrease in government deficits. D) a business cycle recession.
an expansion in overall economic activity.
