Exam 5: The Behaviour of Interest Rates

A business cycle expansion increases income,causing money demand to ________ and interest rates to ________,everything else held constant.

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

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

An increase in the interest rate ________.

A movement along the bond demand or supply curve occurs when ________ changes.

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 ________.

Pieces of property that serve as a store of value are called ________.

-The figure above illustrates the effect of an increased rate of money supply growth at time period T0.From the figure,one can conclude that the ________.

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

Keynes assumed that money has ________ rate of return.

An increase in the expected rate of inflation will ________ the expected return on bonds relative to the that on ________ assets,everything else held constant.

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

Demonstrate graphically the effect of an increase in the personal savings rate.Show and explain the effect of increased savings on bond prices and interest rates.How would this change affect capital spending?

Everything else held constant,a decrease in wealth ________.

-In the figure above,the price of bonds would fall from P1 to P2 if ________.

In the market for money,an interest rate below equilibrium results in an excess ________ money and the interest rate will ________.

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

Use demand and supply analysis to explain why an expectation of interest rate hikes would cause Government bond prices to fall.

-In a business cycle expansion,the ________ of bonds increases and the ________ curve shifts to the ________ as business investments are expected to be more profitable.

Everything else held constant,if the expected return on 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 bonds and the demand for corporate bonds ________.