Exam 5: The Behavior of Interest Rates

In Keynes's liquidity preference framework, individuals are assumed to hold their wealth in two forms:

The bond demand curve is ________ sloping, indicating a(n) ________ relationship between the price and quantity demanded of bonds.

If gold becomes acceptable as a medium of exchange, the demand for gold will ________ and the demand for bonds will ________, everything else held constant.

-In the figure above, the decrease in the interest rate from i₁ to i₂ can be explained by

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

-In the figure above, the factor responsible for the decline in the interest rate is

If the Fed wants to permanently lower interest rates, then it should raise the rate of money growth if

Everything else held constant, if the expected return on ABC stock rises from 5 to 10 percent and the expected return on CBS stock is unchanged, then the expected return of holding CBS stock ________ relative to ABC stock and the demand for CBS stock ________.

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

If the interest rate on a bond is below the equilibrium interest rate, there is an excess ________ of bonds and the bond price will ________.

If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is immediate, then the

When the price level falls, the ________ curve for nominal money ________, and interest rates ________, everything else held constant.

An increase in the interest rate

What is the impact on interest rates when the Federal Reserve decreases the money supply by selling bonds to the public?

-In the figure above, one factor not responsible for the decline in the demand for money is

Everything else held constant, if the expected return on U.S. Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds ________ relative to U.S. Treasury bonds and the demand for corporate bonds ________.

Everything else held constant, would an increase in volatility of stock prices have any impact on the demand for rare coins? Why or why not?

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 ________.

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

-In the figure above, a factor that could cause the supply of bonds to increase (shift to the right) is: