Exam 5: The Behavior of Interest Rates

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

If there is an excess supply of money

-In the figure above, the price of bonds would fall from P₁ to P_{2 when}

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.

Everything else held constant, if the expected return on U.S. Treasury bonds falls from 10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock ________ relative to U.S. Treasury bonds and the demand for GE stock ________.

Use demand and supply analysis to explain why an expectation of Fed rate hikes would cause Treasury prices to fall.

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

If the price of bonds is set ________ the equilibrium price, the quantity of bonds demanded exceeds the quantity of bonds supplied, a condition called excess ________.

When gold prices become more volatile, the ________ curve for gold shifts to the ________; ________ the price of gold.

A higher ________ means that an asset's return is more sensitive to changes in the value of the market portfolio.

-In the figure above, a factor that could cause the demand for bonds to decrease (shift to the left) is:

It is possible that when the money supply rises, interest rates may ________ if the ________ effect is more than offset by changes in income, the price level, and expected inflation.

The demand for silver decreases, other things equal, when

You would be less willing to purchase U.S. Treasury bonds, other things equal, if

In Keynes's liquidity preference framework, as the expected return on bonds increases (holding everything else unchanged), the expected return on money ________, causing the demand for ________ to fall.

When the Fed decreases the money stock, the money supply curve shifts to the ________ and the interest rate ________, everything else held constant.

A situation in which the quantity of bonds supplied exceeds the quantity of bonds demanded is called a condition of excess supply; because people want to sell ________ bonds than others want to buy, the price of bonds will ________.

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 ________.

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

In his Liquidity Preference Framework, Keynes assumed that money has a zero rate of return; thus,