Exam 5: The Behaviour of Interest Rates

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 ________.

If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ________ and that of Treasury bills will ________.

The supply curve for bonds has the usual upward slope, indicating that as the price ________, ceteris paribus, the ________ increases.

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

A higher ________ means that an asset's return is more sensitive to changes in the value of the market portfolio.

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

Keynes assumed that money has ________ rate of return.

Demonstrate graphically and explain the effect in the bond market of a decrease in the federal deficit. What is the effect on the interest rate and bond prices? How might capital spending be affected by the deficit?

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

-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 ________.

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

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

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

You would be less willing to purchase bonds, other things equal, if ________.

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

In the Keynesian liquidity preference framework, an increase in the interest rate causes the demand curve for money to ________, everything else held constant.

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

During a recession, the supply of bonds ________ and the supply curve shifts to the ________, everything else held constant.

Everything else held constant, a decrease in wealth ________.

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