Eco 29 Exam 1 - Chapter 5

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​ ________. A. left; rises B. right; rises C. left; falls D. right; falls

A. left; rises

Everything else held​ constant, when stock prices become​ ________ volatile, the demand curve for bonds shifts to the​ ________ and the interest rate​ ________. A. more; right; falls B. more; right; rises C. less; left; does not change D. less; left; falls

A. more; right; falls

Everything else held​ constant, when the government has higher budget deficits A. the supply curve for bonds shifts to the right and the interest rate falls. B. the supply curve for bonds shifts to the right and the interest rate rises. C. the demand curve for bonds shifts to the left and the interest rate falls. D. the demand curve for bonds shifts to the left and the interest rate rises.

B. the supply curve for bonds shifts to the right and the interest rate rises.

Along the supply curve for​ bonds, an increase in the price of bonds: A. increases the interest rate and decreases the quantity of bonds supplied. B. decreases the interest rate and decreases the quantity of bonds supplied. C. decreases the interest rate and increases the quantity of bonds supplied. D. increases the interest rate and increases the quantity of bonds supplied.

C. Decreases the interest rate and increases the quantity of bonds supplied

A lower level of income causes the demand for money to​ ________ and the interest rate to​ ________, everything else held constant. A. decrease; increase B. increase; increase C. decrease; decrease D. increase; decrease

C. decrease; decrease

If the demand for bonds shifts to the​ left, the price of bonds A. increases, and interest rates fall. B. increases, and interest rates rise. C. decreases, and interest rates rise. D. decreases, and interest rates fall.

C. decreases, and interest rates rise.

In the bond​ market, the bond demanders are the​ ________ and the bond suppliers are the​ ________. A. lenders; advancers B. borrowers; lenders C. lenders; borrowers D. borrowers; advancers

C. lenders; borrowers

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; left B. demand; demand; left C. supply; supply; right D. demand; demand; right

C. supply; supply; right

________ in the money supply creates excess​ ________ money, causing interest rates to​ ________, everything else held constant. A. An​ increase; demand​ for; fall B. An​ increase; supply​ of; rise C. A​ decrease; supply​ of; fall D. A​ decrease; demand​ for; rise

D. A​ decrease; demand​ for; rise

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​ ________. A. rise; left B. rise; right C. fall; right D. fall, left

D. fall, left

A business cycle expansion increases​ income, causing money demand to​ ________ and interest rates to​ ________, everything else held constant. A. decrease; decrease B. decrease; increase C. increase; decrease D. increase; increase

D. increase; increase

How might a sudden increase in​ people's expectations of future real estate prices affect interest​ rates? A. 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. B. Interest rates would decrease because real estate would have a relatively lower rate of return compared to​ bonds, which would cause the demand for bonds to increase. C. Interest rates would decrease because real estate would have a relatively higher rate of return compared to​ bonds, which would cause the demand for bonds to decrease. D. Interest rates would increase because real estate would have a relatively lower rate of return compared to​ bonds, which would cause the demand for bonds to increase.

A. 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? A. When bond prices become more​ volatile, bonds become riskier and the demand for bonds will​ fall, which causes interest rates to rise B. When bond prices become more​ volatile, bonds become riskier and the demand for bonds will​ rise, which causes interest rates to rise C. When bond prices become more​ volatile, bonds become riskier and the demand for bonds will​ rise, which causes interest rates to fall D. When bond prices become more​ volatile, bonds become riskier and the demand for bonds will​ fall, which causes interest rates to fall

A. When bond prices become more​ volatile, bonds become riskier and the demand for bonds will​ fall, which causes interest rates to rise

If the price of bonds is below the equilibrium​ price, there occurs an excess: A. demand for bonds comma the price of bonds will rise comma and the interest rate will fall. B. supply of​ bonds, the price of bonds will​ rise, and the interest rate will fall. C. supply of bonds comma the price of bonds will fall comma and the interest rate will rise. D. demand for​ bonds, the price of bonds will​ fall, and the interest rate will rise.

A. demand for bonds comma the price of bonds will rise comma and the interest rate will fall

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​ ________. A. demand; fall B. demand; rise C. supply; rise D. supply; fall

A. demand; fall

When the prices of rare coins become​ volatile, the​ ________ curve for bonds shifts to the​ ________, everything else held constant. A. demand; right B. supply; right C. demand; left D. supply; left

A. demand; right

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. A. rises; right B. falls; left C. rises; left D. falls; right

A. rises; right

Everything else held​ constant, an increase in expected​ inflation, lowers the expected return on​ ________ compared to​ ________ assets. A. real​ estate; financial B. bonds; real C. real​ estate; real D. bonds; financial

B. bonds; real

Holding everything else​ constant, if interest rates are expected to​ increase, the demand for bonds​ ________ and the demand curve shifts​ ________. A. increases; left B. decreases; left C. increases; right D. decreases; right

B. decreases; left

In the market for​ money, an interest rate below equilibrium results in an excess​ ________ money and the interest rate will​ ________. A. demand​ for; fall B. demand​ for; rise C. supply​ of; fall D. supply​ of; rise

B. demand​ for; rise

A rise in the price level causes the demand for money to​ ________ and the interest rate to​ ________, everything else held constant. A. decrease; decrease B. increase; increase C. decrease; increase D. increase; decrease

B. increase; increase

If there is an excess demand for​ money, individuals​ ________ bonds, causing interest rates to​ ________. A. buy; rise B. sell; rise C. sell; fall D. buy; fall

B. sell; rise

What effect will a sudden increase in the volatility of gold prices have on interest​ rates? A. Interest rates will increase because bonds will become relatively less​ risky, which increases the demand for bonds B. Interest rates will increase because bonds will become relatively more​ risky, which decreases the demand for bonds C. Interest rates will decrease because bonds will become relatively less​ risky, which increases the demand for bonds D. Interest rates will decrease because bonds will become relatively more​ risky, which decreases the demand for bonds

C. 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? A. Interest rates will fall because the expected increase in stock prices raises the liquidity of stocks relative to bonds and so the demand for bonds decreases B. Interest rates will rise because the expected increase in stock prices raises the liquidity of stocks relative to bonds and so the demand for bonds decreases C. 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 D. Interest rates will fall because the expected increase in stock prices raises the expected return on stocks relative to bonds and so the demand for bonds decreases

C. 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

If there is an excess supply of money A. individuals sell​ bonds, causing the interest rate to rise. B. individuals sell​ bonds, causing the interest rate to fall. C. individuals buy​ bonds, causing interest rates to fall. D. individuals buy​ bonds, causing interest rates to rise.

C. individuals buy​ bonds, causing interest rates to fall.

In the figure​ above, the price of bonds would fall from P1 to P2 when: A. the riskiness of bonds falls relative to other assets. B. the expected return on bonds relative to other assets is expected to increase in the future. C. interest rates are expected to fall in the future. D. inflation is expected to increase in the future.

D. inflation is expected to increase in the future.

The demand curve for bonds has the usual downward​ slope, indicating that at​ ________ prices of the​ bond, everything else​ equal, the​________ is higher. A. higher; quantity demanded B. higher; demand C. lower; demand D. lower; quantity demanded

D. lower; quantity demanded

In the bond​ market, the market equilibrium shows the market-clearing ________ and market-clearing ________. A. price; deposit B. interest​ rate; premium C. interest​ rate; deposit D. price; interest rate

D. price; interest rate

The supply curve for bonds has the usual upward​ slope, indicating that as the price​ ________, ceteris​ paribus, the​ ________increases. A. falls; quantity supplied B. rises; supply C. falls; supply D. rises; quantity supplied

D. rises; quantity supplied

When the wealth of individuals increases, A. the price of bonds decreases while the interest rates increase. B. both the price of bonds and interest rates increase. C. both the price of bonds and interest rates decrease. D. the price of bonds increases while the interest rates decrease.

D. the price of bonds increases while the interest rates decrease.

The president of the United States announces in a press conference that he will fight the higher inflation rate with a new​ anti-inflationprogram. 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 (Rise/Fall)​,which causes the demand for bonds to shift to the (Right/Left). ​However, the lower expected inflation rate causes the cost of borrowing to (Rise/Fall), so the supply of bonds will (Increase/Decrease), which causes the supply curve for bonds to shift to the (Right/Left). The impact of this change in bond demand and supply will cause equilibrium interest rates to (Increase/Decrease).

Fall; Right; Rise; Decrease; Left; Decrease

If the supply of bonds shifts to the left, the price of bonds _________, and the interest rate ___________.

increases; decreases