Exam 5: The Behaviour of Interest Rates

-When the government has a surplus,as occurred in the late 1990s,the ________ curve of bonds shifts to the ________,everything else held constant.

-When the inflation rate is expected to increase,the ________ for bonds falls,while the ________ curve shifts to the right,everything else held constant.

If fluctuations in interest rates become smaller,then,other things equal,the demand for stocks ________ and the demand for long-term bonds ________.

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

The bond supply and demand framework is easier to use when analyzing the effects of changes in ________,while the liquidity preference framework provides a simpler analysis of the effects from changes in income,the price level,and the supply of ________.

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

The demand for gold increases,other things equal,when ________.

Demonstrate graphically and explain how increased profitability of investments and increased deficits affect bond prices and interest rates.

The demand for silver decreases,other things equal,when ________.

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

A limitation of the CAPM is the assumption that ________.

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 ________.

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

If there is an excess supply of money ________.

-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 ________.

An increase in the expected inflation rate will ________ the ________ for gold,________ its price,everything else held constant.

When the price of a bond decreases,all else equal,the bond demand curve ________.

-Everything else held constant,when stock prices become less volatile,the demand curve for bonds shifts to the ________ and the interest rate ________.

Interest rates increased continuously during the 1970s.The most likely explanation is ________.

-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 ________.