Eco money and banking chapter 5
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