Econ 29 Chapter 5

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

Demand for bonds, the price of bonds will rise and the interest rates will fall

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

demand​ for; rise

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​ ________.

​more; right; falls

In the bond​ market, the market equilibrium shows the market clearing ​________ and market clearing ​________.

​price; interest rate

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

If there is an excess demand for​ money, individuals​ ________ bonds, causing interest rates to​ ________.

​sell; rise

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

​________ in the money supply creates excess​ ________ money, causing interest rates to​ ________, everything else held constant.

A​ decrease; demand​ for; rise

Along the supply curve for​ bonds, a decrease in the price of bonds

Increases the interest, decreases the quantity of bonds supplied

What effect will a sudden increase in the volatility of gold prices have on interest​ rates?

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?

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

How might a sudden increase in​ people's expectations of future real estate prices affect interest​ rates?

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?

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

If the supply of bonds shifts to the right​, the price of bonds ​, and the interest rate . When the wealth of individuals​ decreases

decreases, increases,

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 bonds 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 supply 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

If there is an excess supply of money

individuals buy​ bonds, causing interest rates to fall.

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.

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

​bonds; real

A lower level of income causes the demand for money to​ ________ and the interest rate to​ ________, everything else held constant.

​decrease; decrease

If the demand for bonds shifts to the​ left, the price of bonds

​decreases, and interest rates rise.

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

​decreases; left

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 prices of rare coins become​ volatile, the​ ________ curve for bonds shifts to the​ ________, everything else held constant.

​demand; right

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

A business cycle expansion increases​ income, causing money demand to​ ________ and interest rates to​ ________, everything else held constant.

​increase; increase

A rise in the price level causes the demand for money to​ ________ and the interest rate to​ ________, everything else held constant.

​increase; increase

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