Money and Banking Chapter 5
Correct Answer: An increase in the level of wealth in the economy.
Other things remaining equal, which of the following will increase the demand (shift the demand curve to the right) for bond J?
Correct Answer: increase the demand for bond K and decrease the interest rate on bond K.
Suppose the price of bond J rises. This will:
The demand for an asset will increase if the expected return on an asset rises.
The theory of asset demand tells us that
an increase in income will increase money demand and increase the interest rate.
Using money demand and money supply:
Correct Answer: An increase in the price of bond J.
Which of the following will cause a movement along the demand curve for bond J?
Correct Answer: A business cycle expansion.
Which of the following will increase the supply of bonds (shift the supply curve to the right)?
Correct Answer: Because as the interest rate falls, firms are more willing to borrow money.
Why does the supply curve for bonds slope upward?
Asset Market Approach
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Demand Curve
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Excess Demand
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Excess Supply
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Expected Return
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Fisher Effect
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Liquidity
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Liquidity Preference Framework
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Market Equilibrium
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Opportunity Cost
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Risk
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Supply Curve
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Theory of Asset Demand
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Wealth
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increase the demand for bonds, increase the supply of bonds, and increase the interest rate.
A business cycle expansion will:
Correct Answer: liquidity
According to the ________ effect, an increase in the money supply lowers the interest rate.
decrease the demand for bonds, increase the supply of bonds and increase the interest rate.
An increase in the expected inflation rate will:
Correct Answer: there is an excess supply and the price will tend to fall.
At a bond price above the equilibrium,
Correct Answer: there is an excess demand for money and the interest rate will rise.
At interest rates below the equilibrium rate of interest
Correct Answer: Md + Bd = Ms + Bs
Because Keynes assumed that money and bonds are the only two assets available, it must be true that
Correct Answer: People demand fewer bonds now, firms issue more bonds now, and interest rates rise now.
If long-term interest rates are expected to rise in the future, then
Correct Answer: Because people are more willing to hold money when interest rates are low.
In Liquidity Preference, why does the demand curve for money slope downward?