Exam 5: The Behaviour of Interest Rates

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

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

If there is an excess supply of money ________.

Everything else held constant, an increase in expected inflation, lowers the expected return on ________ compared to ________ assets.

Of the four factors that influence asset demand, which factor will cause the demand for all assets to increases, everything else held constant?

In the Keynesian liquidity preference framework, a rise in the price level causes the demand for money to ________ and the demand curve to shift to the ________, 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 ________.

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

When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant.

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

The ________ the returns on two securities move together, the ________ benefit there is from diversification.

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

Using the liquidity preference framework, show what happens to interest rates during a business cycle recession.

-In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that the ________.

In Keynes's liquidity preference framework, if there is excess demand for money, there is ________.

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

-In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that the ________.

Everything else held constant, an increase in the liquidity of bonds results in a ________ in demand for bonds and the demand curve shifts to the ________.

Both the CAPM and APT suggest that an asset should be priced so that it has a higher expected return ________.

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.