Exam 4: Why Do Interest Rates Change

When the inflation rate is expected to increase, the real cost of borrowing declines at any given interest rate; as a result, the ________ bonds increases and the ________ curve shifts to the right.

Use the following figure to answer the questions : Figure 4.1: -In Figure 4.1, the most likely cause of a decrease in the equilibrium interest rate from i₂ to i₁ is

When bond prices become more volatile, the demand for bonds ________ and the interest rate ________.

A person who is risk averse prefers to hold assets that are more, not less, risky.

The more liquid an asset is relative to alternative assets, holding everything else unchanged, the more desirable it is, and the greater the quantity demanded.

Factors that can cause the supply curve for bonds to shift to the right include

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

When the growth rate of the money supply increases, interest rates end up being permanently lower if

During an economic expansion, the supply of bonds ________ and the supply curve shifts to the ________.

Holding everything else constant, an increase in wealth lowers the quantity demanded of an asset.

When comparing the loanable funds and liquidity preference frameworks of interest rate determination, which of the following is true?

Use the following figure to answer the questions : Figure 4.3: -In Figure 4.3, the decrease in the interest rate from i₁ to i₂ can be explained by

How is the equilibrium interest rate determined in the bond market? Explain why the interest rate will move toward equilibrium if it is temporarily above or below the equilibrium rate.

Use the following figure to answer the questions : Figure 4.2: -In Figure 4.2, one possible explanation for the increase in the interest rate from i₁ to i₂ is

When the price of a bond is ________ the equilibrium price, there is an excess supply of bonds and the price will ________.

A decline in the expected inflation rate causes the demand for money to ________ and the demand curve to shift to the ________

The demand for an asset rises if ________ falls.

When the growth rate of the money supply is increased, interest rates will rise immediately if the liquidity effect is ________ than the other effects and if there is ________ adjustment of expected inflation.

When an economy grows out of a recession, normally the demand for bonds increases and the supply of bonds increases.

When the growth rate of the money supply is decreased, interest rates will rise immediately if the liquidity effect is ________ than the other effects and if there is ________ adjustment of expected inflation.