Exam 5: The Behavior of Interest Rates

The risk of a well-diversified portfolio depends only on the ________ risk of the assets in the portfolio.

Everything else held constant,if interest rates are expected to fall in the future,the demand for long-term bonds today ________ and the demand curve shifts to 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.

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

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

Milton Friedman called the response of lower interest rates resulting from an increase in the money supply the ________ effect.

The bond demand curve is ________ sloping,indicating a(n)________ relationship between the price and quantity demanded of bonds,everything else equal.

Everything else held constant,when real estate prices are expected to decrease

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

If wealth increases,the demand for stocks ________ and that of long-term bonds ________,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

-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 an asset's expected return relative to that of an alternative asset,holding everything else constant,________ the quantity demanded of the asset.

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

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

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

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

When the price level falls,the ________ curve for nominal money ________,and interest rates ________,everything else held constant.

During a recession,the supply of bonds ________ and the supply curve shifts to the ________,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 ________.