Econ 2035 Ch5.3

In the 1990s Japan had the lowest interest rates in the world due to a combination of

deflation and recession

If people expect real estate prices to increase significantly, the ________ curve for bonds will shift to the ________, everything else held constant

demand; left

If stock prices are expected to climb next year, everything else held constant, the ________ curve for bonds shifts ________ and the interest rate ________.

demand; left; rises

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

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

A movement along the bond demand or supply curve occurs when ________ changes.

bond price

Everything else held constant, an increase in expected inflation, lowers the expected return on ________ compared to ________ assets.

bonds; real

Everything else held constant, when households save less, wealth and the demand for bonds ________ and the bond demand curve shifts ________.

decrease; left

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

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

more; right; falls

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

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 expected return on bonds increases, all else equal, the demand for bonds increases, the price of bonds ________, and the interest rate ________.

increases; decreases

If real estate prices are expected to drop, all else equal, the demand for bonds ________ and the interest rate_______.

increases; falls

Holding everything else constant, if interest rates are expected to increase, the demand for bonds ________ and the demand curve shifts ________.

decreases; left

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

When rare coin prices become volatile, the ________ curve for bonds shifts to the ________, everything else held constant

demand; right

When the price of a bond decreases, all else equal, the bond demand curve

does not shift

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

When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant

decreases; decreases; falls

If brokerage commissions on stocks fall, everything else held constant, the demand for bonds ________, the price of bonds ________, and the interest rate ________.

decreases; decreases; increases

When the expected inflation rate increases, the real cost of borrowing ________ and bond supply ________, everything else held constant.

decreases; increases

When the expected inflation rate increases, the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant

decreases; increases; rises

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

decreases; left

When the interest rate changes

it is because either the demand or the supply curve has shifted

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

Everything else held constant, when prices in the art market become more uncertain

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

the demand curve for bonds shifts to the right and the interest rate falls

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

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

Factors that decrease the demand for bonds include

a decrease in the riskiness of stocks

Factors that can cause the supply curve for bonds to shift to the right include

an expansion in overall economic activity

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

Deflation causes the demand for bonds to ________, the supply of bonds to ________, and bond prices to ________, everything else held constant

increase; decrease; increase

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

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

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

rise; increases

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

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