Question 1

Deflation causes the demand for bonds to ________, the supply of bonds to ________, and bond prices to ________, everything else held constant.

Accepted Answer

A)  increase; increase; increase 
B)  increase; decrease; increase 
C)  decrease; increase; increase 
D)  decrease; decrease; increase 
A)  increase; increase; increase 
B)  increase; decrease; increase 
C)  decrease; increase; increase 
D)  decrease; decrease; increase

Question 2

Holding many risky assets and thus reducing the overall risk an investor faces is called

Accepted Answer

A)  diversification. 
B)  foolishness. 
C)  risk acceptance. 
D)  capitalization. 
A)  diversification. 
B)  foolishness. 
C)  risk acceptance. 
D)  capitalization.

Question 3

Holding everything else constant,

Accepted Answer

A)  if asset A's risk rises relative to that of alternative assets, the demand will increase for asset A. 
B)  the more liquid is asset A, relative to alternative assets, the greater will be the demand for asset A. 
C)  the lower the expected return to asset A relative to alternative assets, the greater will be the demand for asset A. 
D)  if wealth increases, demand for asset A increases and demand for alternative assets decreases. 
A)  if asset A's risk rises relative to that of alternative assets, the demand will increase for asset A. 
B)  the more liquid is asset A, relative to alternative assets, the greater will be the demand for asset A. 
C)  the lower the expected return to asset A relative to alternative assets, the greater will be the demand for asset A. 
D)  if wealth increases, demand for asset A increases and demand for alternative assets decreases.

Question 4

When the price level ________, the demand curve for money shifts to the ________ and the interest rate ________, everything else held constant.

Accepted Answer

A)  falls; left; falls 
B)  rises; right; falls 
C)  falls; left; rises 
D)  rises; right; rises 
A)  falls; left; falls 
B)  rises; right; falls 
C)  falls; left; rises 
D)  rises; right; rises

Question 5

An increase in the expected inflation rate causes the supply of bonds to ________ and the supply curve to shift to the ________, everything else held constant.

Accepted Answer

A)  increase; left 
B)  increase; right 
C)  decrease; left 
D)  decrease; right 
A)  increase; left 
B)  increase; right 
C)  decrease; left 
D)  decrease; right

Question 6

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

Accepted Answer

A)  A decrease; demand for; rise 
B)  An increase; demand for; fall 
C)  An increase; supply of; rise 
D)  A decrease; supply of; fall 
A)  A decrease; demand for; rise 
B)  An increase; demand for; fall 
C)  An increase; supply of; rise 
D)  A decrease; supply of; fall

Question 7

If brokerage commissions on bond sales decrease, then, other things equal, the demand for bonds will ________ and the demand for real estate will ________.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  decrease; increase 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  decrease; increase

Question 8

The opportunity cost of holding money is

Accepted Answer

A)  the level of income. 
B)  the price level. 
C)  the interest rate. 
D)  the discount rate. 
A)  the level of income. 
B)  the price level. 
C)  the interest rate. 
D)  the discount rate.

Question 9

Using the liquidity preference framework, what will happen to interest rates if the Fed increases the money supply?

Accepted Answer

The Fed's actions shift the mo

Question 10

In the bond market, the bond demanders are the ________ and the bond suppliers are the ________.

Accepted Answer

A)  lenders; borrowers 
B)  lenders; advancers 
C)  borrowers; lenders 
D)  borrowers; advancers 
A)  lenders; borrowers 
B)  lenders; advancers 
C)  borrowers; lenders 
D)  borrowers; advancers

Question 11

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.

Accepted Answer

A)  falls; right 
B)  falls; left 
C)  rises; right 
D)  rises; left 
A)  falls; right 
B)  falls; left 
C)  rises; right 
D)  rises; left

Question 12

Everything else held constant, when the inflation rate is expected to rise, interest rates will ________; this result has been termed the ________.

Accepted Answer

A)  fall; Keynes effect 
B)  fall; Fisher effect 
C)  rise; Keynes effect 
D)  rise; Fisher effect 
A)  fall; Keynes effect 
B)  fall; Fisher effect 
C)  rise; Keynes effect 
D)  rise; Fisher effect

Question 13

In the loanable funds framework, the ________ curve of bonds is equivalent to the ________ curve of loanable funds.

Accepted Answer

A)  demand; demand 
B)  demand; supply 
C)  supply; supply 
D)  supply; equilibrium 
A)  demand; demand 
B)  demand; supply 
C)  supply; supply 
D)  supply; equilibrium

Question 14

A decrease in the brokerage commissions in the housing market from 6% to 5% of the sales price will shift the ________ curve for bonds to the ________, everything else held constant.

Accepted Answer

A)  demand; right 
B)  demand; left 
C)  supply; right 
D)  supply; left 
A)  demand; right 
B)  demand; left 
C)  supply; right 
D)  supply; left

Question 15

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

Accepted Answer

A)  a decrease in government budget deficits. 
B)  a decrease in expected inflation. 
C)  a recession. 
D)  a business cycle expansion. 
A)  a decrease in government budget deficits. 
B)  a decrease in expected inflation. 
C)  a recession. 
D)  a business cycle expansion.

Question 16

-In the figure above, a factor that could cause the demand for bonds to shift to the right is:

Accepted Answer

A)  an increase in the riskiness of bonds relative to other assets. 
B)  an increase in the expected rate of inflation. 
C)  expectations of lower interest rates in the future. 
D)  a decrease in wealth. 
A)  an increase in the riskiness of bonds relative to other assets. 
B)  an increase in the expected rate of inflation. 
C)  expectations of lower interest rates in the future. 
D)  a decrease in wealth.

Question 17

In the 1990s Japan had the lowest interest rates in the world due to a combination of

Accepted Answer

A)  inflation and recession. 
B)  deflation and expansion. 
C)  inflation and expansion. 
D)  deflation and recession. 
A)  inflation and recession. 
B)  deflation and expansion. 
C)  inflation and expansion. 
D)  deflation and recession.

Exam 5: The Behavior of Interest Rates

Deflation causes the demand for bonds to ________, the supply of bonds to ________, and bond prices to ________, everything else held constant.

Holding many risky assets and thus reducing the overall risk an investor faces is called

Holding everything else constant,

When the price level ________, the demand curve for money shifts to the ________ and the interest rate ________, everything else held constant.

An increase in the expected inflation rate causes the supply of bonds to ________ and the supply curve to shift to the ________, everything else held constant.

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

If brokerage commissions on bond sales decrease, then, other things equal, the demand for bonds will ________ and the demand for real estate will ________.

The opportunity cost of holding money is

Using the liquidity preference framework, what will happen to interest rates if the Fed increases the money supply?

In the bond market, the bond demanders are the ________ and the bond suppliers are the ________.

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.

Everything else held constant, when the inflation rate is expected to rise, interest rates will ________; this result has been termed the ________.

In the loanable funds framework, the ________ curve of bonds is equivalent to the ________ curve of loanable funds.

A decrease in the brokerage commissions in the housing market from 6% to 5% of the sales price will shift the ________ curve for bonds to the ________, everything else held constant.

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

-In the figure above, a factor that could cause the demand for bonds to shift to the right is:

In the 1990s Japan had the lowest interest rates in the world due to a combination of

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Nonbank Finance

Financial Derivatives

Conflicts of Interest in the Financial Industry

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

Aggregate Demand and Supply Analysis

Monetary Policy Theory

Transmission Mechanisms of Monetary Policy

Filters

Deflation causes the demand for bonds to , the supply of bonds to , and bond prices to , everything else held constant.

When the price level , the demand curve for money shifts to the and the interest rate , everything else held constant.

An increase in the expected inflation rate causes the supply of bonds to and the supply curve to shift to the , everything else held constant.

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

If brokerage commissions on bond sales decrease, then, other things equal, the demand for bonds will and the demand for real estate will .

In the bond market, the bond demanders are the and the bond suppliers are the .

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.

Everything else held constant, when the inflation rate is expected to rise, interest rates will ; this result has been termed the .

In the loanable funds framework, the curve of bonds is equivalent to the curve of loanable funds.

A decrease in the brokerage commissions in the housing market from 6% to 5% of the sales price will shift the curve for bonds to the , everything else held constant.