Eco money and banking chapter 5

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In the market for​ money, an interest rate below equilibrium results in an excess ___ money and the interest rate will ___.

Demand for; Fall

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

Downward; inverse

If there is an excess supply of money

Individuals buy bonds, causing interest rates to fall

In​ Keynes's liquidity preference​ framework,

An excess supply of bonds implies an excess demand for money.

___ in the money supply in the market for money creates excess demand for ___, causing interest rates to ___, everything else held constant.

An increase; Bonds; Fall

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

Explain the effect that a large federal deficit will have on interest rates.

Bs shifts right (down), causing interest rates to increase

Along the supply curve for​ bonds, an increase in the price of bonds

Decrease the interest rates and increases the quantity of bonds supplied.

If the demand for bonds shift to the left, the price of bonds

Decrease, and interest rates rise

If the price of god becomes less volatile, then , other things equal, the demand for stocks will ___ and the demand for antiques will ___.

Decrease; Decrease

If the marker price of a $1,000-face-value discount bond changes from $950 to $975, the yield to maturity ___ by ___%.

Decreases; 2.7

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

Decreases; left

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 bods 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 supple 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

A/an increase in the volatility of the bond market causes the demand for bonds to ___ and the demand curve to ___.

Fall; Shift to the left

Given the business cycle contraction has resulted in a lack of profitable investment opportunities in the private​ sector, which of the following would potentially be a stimulus to the Japanese economy and would raise interest​ rates?

If the government runs large deficits to fund new infrastructure projects, it would issue debt to finance these deficits. This would increase the supply of bonds, which would raise interest rates.

If brokerage commissions on bond sales decrease, then , other things equal, the demand for bonds will ___ and the the demand for real estate will ___.

Increase; Decrease

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

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

Increases; decreases

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

Suppose that there is a higher level of income due to a business cycle expansion.

Md shifts right (up)

In the liquidity preference framework, interest rates are determined by the supple and demand for

Money

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

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

More; Right; Falls

When the savings rate of individuals decrease then the supply of bonds ___ for every bond price.

Remains the same

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

In the market for money, when real income ___, the demand curve for some shifts to the ___ and the interest rate ___, everything else held constant.

Rises; Right; Rises

In the market for money, when the price level ___, the demand curve for money shifts to the ___ and the interest rate___, everything else held constant.

Rises; Right; Rises

If the price of bonds is above the equilibrium​ price, there occurs an excess

Supply of bonds, the price of bonds will fall, and the interest rate will rise.

When the price of a bond is about the equilibrium price, there is an excess ___ bonds and price will ___.

Supply of; Fall

In a business cycle​ expansion, the​ ___ of bonds increases and the​ ___ curve shifts to the​ ___ as business investments are expected to be more​ profitable, everything else held constant.

Supply; supply; right

When the wealth of individuals increases,

The price of bonds increases while the interest rates decrease.

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 his Liquidity Preference​ Framework, Keynes assumed that money has a zero rate of​ return; thus,

When interest rates rise, the expected return on money falls relative to the expected return on bonds, causing the demand for money to fall.

The opportunity cost of holding money is

the interest rate


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