M&B-Ch. 5
A decrease in interest rates can be caused by a(n) ______ in the demand for bonds or a(n) ______ in the supply of bonds A) increase; decrease B) increase; increase C) decrease; decrease D) decrease; increase
A
A lower level of income causes the demand for money to ______ and the interest rate to _______, everything else held constant. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase
A
Everything else held constant, if the expected return on RST stock falls from 10% to 9% and the expected return on XYZ stock falls from 8% to 7%, then the expected return of holding RST stock _____ relative to XYZ stock and demand for XYZ stock _____. A) rises; rises B) rises; falls C) falls; rises D) falls; falls
B
If fluctuations in interest rates become larger, then, other things equal, the demand for stocks _______ and the demand for long-term bonds ________. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases
B
If stock market prices become less volatile, then, other things equal, the demand for stocks ____ and the demand for long-term bonds _____. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases increases
B
If the federal government decreases its purchases and doesn't decrease taxes, the bond supply shifts to the A) left and the equilibrium interest rate rises B) left and the equilibrium interest rate falls C) right and the equilibrium interest rate rises D) right and the equilibrium interest rate falls
B
If there is an excess supply of loanable funds at a given interest rate, then A) the price of bonds will fall B) the price of bonds will rise C) the interest rate will rise D) the price of bonds may rise or fall depending upon the reasons for the excess supply of loanable funds
B
The demand for bonds is A) equivalent to the demand for loanable funds B) equivalent to the supply of loanable funds C) represented by an upward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds demanded is on the horizontal axis D) represented by a downward-sloping line when the interest rate is on the vertical axis and the quantity of bonds demanded is on the horizontal axis
B
The supply curve for bonds would be shifted to the right by A) a decrease in government borrowing B) a decrease in the corporate tax on profits C) an increase in tax subsidies for investment D) a decrease in expected inflation
B
Which of the following would NOT cause a change in the desire to borrow at every interest rate A) a decrease in the US government deficit level B) a change in the price of bonds C) the economy enters an expansionary phase of the business cycle D) a decrease in the corporate profits tax
B
Which of the following would NOT increase the supply curve of loanable funds? A) A Federal Reserve purchase of US Government securities from commercial banks B) A higher interest rate C) An increase in the nation's real income D) All of the above shift supply
B
Which of the following would not increase the supply curve of loanable funds? A) A Federal Reserve purchases does of U.S. Government securities from commercial banks B) A higher interest rate C) An increase in the nation's real income D) All of the above shift the supply
B
in the bond market the issuer(seller) is considered the A) lender B) borrower C) the lender or the borrower depending on use to which the funds are put D) the lender or the borrower depending on whether interest rates are rising or falling
B
Everything else held constant, if the expected return on RST stock rises from 7 to 9 percent and the expected return on XYZ stock rises from 11 to 12 percent, then the expected return of holding RST stock _____ relative to XYZ stock and demand for XYZ stock _______. A) rises; rises B) rises; falls C) falls; rises D) falls; falls
C
Everything else held constant, if the expected return on RST stock rises from 9 to 10 percent and the expected return on XYZ stock rises from 7 to 8 percent, then the expected return of holding RST stock _______ relative to XYZ stock and demand for XYZ stock ______. A) rises; rises B) rises; falls C) falls; rises D) falls; falls
C
If the expected gains on bonds rise, while the expected returns on stocks fall, then A) the equilibrium interest rate will rise B) the demand curve for bonds will shift to the left C) the supply curve for loanable funds will shift to the right D) the equilibrium price of bonds will fall
C
If the federal government increases its purchases and doesn't change tax rates, the bond supply should shift to the A) left and the equilibrium interest rate rises B) left and the equilibrium interest rate falls C) right and the equilibrium interest rate rises D) right and the equilibrium interest rate falls
C
If the federal government were to offer larger tax breaks on the purchase of new equipment for businesses, all other factors constant A) the bond demand curve shift right B) the bond supply curve shift left C) the bond supply curve shift right D) the bond demand curve shift left
C
If the liquidity effect is larger than the other effects, and the adjustment to expected inflation is slow, then the A) interest rate will fall B) interest rate will rise C) interest rate will fall immediately below the initial level when the money supply grows D) interest rate will rise immediately above the initial level when the money supply grows
C
If there is an excess demand for bonds at a given price, then A) the price of bonds will fall B) the interest rate will rise C) the interest rate will fall D) the interest rate may rise or fall depending upon the reasons for the excess demand for bonds
C
If there is an excess demand for loanable funds at a given interest rate, then A) the supply of loanable funds will increase B) the price of bonds will rise C) the interest rate will rise D) the price of bonds may rise or fall depending upon the reasons for the excess demand for loanable funds
C
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 the interest rate to fall D) individuals buy bonds, causing the interest rate to rise
C
In the Bs/Bd model, which of the following would lead to an increase in interest rates? A) a cutback in federal entitlement expenditures B) an announcement of a reduction in the growth rate of the money supply C) an increase in business confidence D) an increase in the public's propensity to save rather than consume
C
Interest rates typically display a _____ pattern A) countercyclical B) cyclically neutral C) procyclical D) none of the above
C
Of the three effects on interest rates below that occur from an increase in the money supply, the one that begins to impact interest rates the soonest is the A) income effect B) price level effect C) expected inflation effect D) none of the above
C
Other things being equal, an increase in the default risk of corporate bonds shifts the demand curve for corporate bonds to the _____ and the demand curve for Treasury bonds to the _____. A) right; right B) right; left C) left; right D) left; left
C
Suppose you have a strong feeling that the economy is poised on the brink of a recession. As an individual investor, your best strategy would likely be to A) Sell your treasury bonds and put your money under a mattress B) sell your treasury bonds and out the money in stocks C) sell your short-term treasury instruments and buy long-term treasury instruments D) sell your long-term treasury instruments and buy long-term treasury instruments
C
The demand curve for bonds would be increased by A) an increase in the expected returns on other assets B) an increase in the information costs of bonds relative to other assets C) a decrease in the marginal income tax D) a decrease in the liquidity of bonds relative to other assets
C
The supply curve for bonds would be shifted to the right by A) a decrease in government borrowing B) an increase in the corporate tax on profits C) an increase in subsidies for investment D) a decrease in expected inflation
C
Which of the following would NOT cause the demand curve for bonds to shift? A) A change in expected inflation B) A change in the liquidity of bonds C) A change in the price of bonds D) A change in wealth E) None of the above since each event listed causes demand to change
C
Which one of these will cause the equilibrium price of bonds to rise A) the savings rate decreases B) business borrowing increases C) the federal deficit decreases D) national wealth increases
C
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) decrease; increase C) increase; decrease D) increase; increase
D
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) decrease; increase C) increase; decrease D) increase; increase
D
An increase in interest rates can be caused by a(n) _____ in the demand for bonds or a(n) _____ in the supply of bonds A) increase; decrease B) increase; increase C) decrease; decrease D) decrease; increase
D
If asset A is a risky asset yielding 10% and asset B is a riskless asset with the same maturity with a yield of 8% investors would A) prefer asset A B) prefer asset B C) be indifferent D) require more information
D
If fluctuations in interest rates become less volatile, then, other things equal, the demand for short-term bonds_____ and the demand for long-term bonds____. A) increases; decreases B) increases; increases C) decreases; decreases D) decreases; increases
D
If fluctuations in interest rates become less volatile, then, other things equal, the demand for stocks _____ and the demand for long-term bonds _______. A) increase; decrease B) increase; increase C) decrease; decrease D) decrease; increase
D
If fluctuations in stock prices become more volatile, then, other things equal, the demand for stocks _____ and the demand for long-term bonds _______. A) increase; decrease B) increase; increase C) decrease; decrease D) decrease; increase
D
If the US government's borrowing needs decrease, all other factors constant, A) the supply of bonds will increase B) the demand for bonds will increase C) the price of bonds will decrease D) the price of bonds will increase
D
If the expected gains on stocks falls, while the expected returns on bonds do not change, then A) the demand curve for bonds will shift to the left B) the supply curve for loanable funds will shift left C) the equilibrium price on bonds will fall D) the equilibrium interest rate will fall
D
If the expected returns on stocks fall, while the expected returns on bonds do not change, then A) the equilibrium interest rate will rise B) the demand curve for bonds will shift to the left C) the supply curve for bonds will shift to the right D) the equilibrium interest rates will fall
D
If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is immediate, then the A) interest rate will fall B) interest rate will rise C) interest rate will fall immediately below the initial level when the money supply grows D) interest rate will rise immediately above the initial level when the money supply grows
D
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
D
In the Bs/Bd model, which of the following would likely lead to a decrease in interest rates? A) an increase in federal entitlement expenditures B) an increase in expected inflation C) an increase in business confidence D) an increase in the public's propensity to save rather than consume
D
The bond supply curve slopes up because A) the borrower is willing and able to offer more bonds when the price of a bond is low B) the lender is willing and able to offer more bonds when the price of the bond is high C) the lender is willing and able to offer more bonds when the price of a bond is low D) the borrower is willing and able to offer more bonds when the price of the bond is high
D
The supply curve for bonds has the usual upward slope, indicating that as the price ______, ceteris paribus, the ______ increases. A) falls; supply B) falls; quantity supplied C) rises; supply D) rises; quantity supplied
D
The supply curve for bonds has the usual upward slope, indicating that as the price _______, ceteris paribus, the _______ increases. A) falls; supply B) falls; quantity supplied C) rises; supply D) rises; quantity supplied
D
When the Fed decreases the money stock, the money supply curve shifts to the ______ and the interest rate ______, everything else held constant. A) right; rises B) right; falls C) left; falls D) left; rises
D
Which of the following would lead to an increase in bond supply A) a decrease in government spending B) an increase in corporate taxes C) a decrease in expected inflation D) an improvement in general business
D
which of the following would not cause the demand curve for bonds to shift A) a change in the business cycle B) an increase in the relative transaction costs of bonds C) a change in the liquidity of stocks D) a change in the price of bonds
D
During an economic expansion A) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises B) the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls C) the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually falls D) the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises
A
During an economic expansion, A) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises B) the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls C) the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually falls D) the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises
A
If interest rates unexpectedly rise sharply, which would you prefer to be holding-- a 30 year deep discount bond or a treasury bill A) treasury bill B) 30 year bond C) you should be indifferent between the two D) cannot determine the answer without knowing their relative yields
A
If the expected gains on stocks rise, while the expected returns on bonds do not change, then A) the equilibrium interest rate will rise B) the demand curve for bonds will shift to the right C) the supply curve for bonds will shift to the right D) the equilibrium interest rate will fall
A
If the government increases taxes while holding expenditures constant, A) the bond supply curve will shift to the left and the equilibrium interest rate will fall B) the bond supply curve will shift to the right and the equilibrium interest rate will fall C) government borrowing will be increases D) the government's deficit will increase
A
In the market for loanable funds, the seller is considered to be A) the lender B) the borrower C) the lender or the borrower depending on the use to which the funds are put D) the lender or the borrower depending upon whether interest rates are rising or falling
A
The Federal Reserve issues a report indicating that future inflation will increase from 3% to 4%. As a result A) the demand for loanable funds shifts right B) the supply curve for bonds shifts left C) the equilibrium interest rate falls D) the equilibrium price of bonds rises
A
The Federal Reserve issues a report indicating that future inflation will increase from 3% to 4%. As a result A) the demand for loanable funds shifts to the right B) the supply curve for bonds shifts left C) the equilibrium interest rate falls D) the equilibrium price of bonds rises
A
The Federal Reserve issues a report indicating that future inflation will increase from 3% to 4%. As a result A) the supply of bonds shifts right B) the demand curve for bonds shifts right C) the equilibrium interest rate falls D) the equilibrium price of bonds rises
A
The demand curve for bonds would be shifted to the left by A) an increase in expected returns on other assets B) a decrease in the information costs of bonds relative to other assets C) a decrease in expected inflation D) an increase in the liquidity of bonds relative to other assets
A
When an economy grows out of a recession, normally the demand for bonds ___ and the supply of bonds _____, certeris paribus A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases
A
When price level falls, the ____ curve for nominal money ______, and interest rates ____, everything else held constant A) demand; decrease; fall B) demand; increase; rise C) supply; increase; rise D) supply; decrease; fall
A
When the economy grows out of a recession, normally the demand for bonds ______, and the supply for bonds ____, certeris paribus A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases
A
Which of the following will cause equilibrium interest rate to rise A) the savings rate decreases B) Business borrowing decreases C) the federal deficit increases D) National wealth increases
A
Which of these will cause the equilibrium interest rate to rise? A) A decrease in the supply of loanable funds B) A decrease in the demand for loanable funds C) An increase in the supply of loanable funds D) A decrease in the quantity of loanable funds demanded
A
During an economic recession A) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises B) the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls C) the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually falls D) the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises
B
Everything else held constant, if the expected return on GE stock falls from 10 to 9 percent and the expected return on US Treasury bonds falls from 7 to 6%, then the expected return of holding GE stock _______ relative to US Treasury Bonds and the demand for US Treasury Bonds _______ A) rises; rises B) rises; falls C) falls; rises D) falls; falls
B
If the expected returns on commodities falls, while the expected returns on bonds does not change, then A) the demand curve for bonds will shift to the left B) the supply curve for loanable funds will shift to the right C) the equilibrium interest rate will rise D) the equilibrium price will fall
B/D
Everything else held constant, if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent, then the expected return of holding RST stock _____ relative to XYZ stock and demand for XYZ stock ______. A) rises; rises B) rises; falls C) falls; rises D) falls; falls
C
You would be less willing to purchase US treasury bonds, other things equal, if A) you inherit $1 million from your uncle Harry B) you expect interest rates to fall C) gold becomes more liquid D) stock prices are expected to fall
c
In the liquidity preference framework, A) the demand for bonds must equal the supply of money B) the demand for money must equal the supply of bonds C) an excess demand of bonds implies an excess demand for money D) an excess supply of bonds implies an excess demand for money
d