Exam 4: Why Do Interest Rates Change

When the demand for bonds ________ or the supply of bonds ________, bond prices rise.

An increase in the inflation rate will cause the demand curve for bonds to shift to the right.

An increase in the expected rate of inflation causes the demand for bonds to ________ and the supply for bonds to ________.

When people begin to expect a large stock market decline, the demand curve for bonds shifts to the ________ and the interest 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 a(n)________ in ________.

When the quantity of bonds demanded equals the quantity of bonds supplied, there is

What is the expected return on a bond if the return is 9% two-thirds of the time and 3% one-third of the time? What is the standard deviation of the returns on this bond? Would you prefer this bond or one with an identical expected return and a standard deviation of 4.5? Why?

When the inflation rate is expected to increase, the expected return on bonds relative to real assets falls for any given interest rate; as a result, the ________ bonds falls and the ________ curve shifts to the left.

Factors that determine the demand for an asset include changes in the

A movement along the demand (or supply)curve occurs when the quantity demanded (or supplied)changes at each given price (or interest rate)of the bond in response to a change in some other factor besides the bond's price or interest rate.

As the price of a bond ________ and the expected return ________, bonds become more attractive to investors and the quantity demanded rises.

When the interest rate on a bond is ________ the equilibrium interest rate, there is excess ________ in the bond market and the interest rate will ________.

When the economy enters into a boom, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________.

When the demand for bonds ________ or the supply of bonds ________, interest rates rise.

An increase in an asset's expected return relative to that of an alternative asset, holding everything else unchanged, raises the quantity demanded of the asset.

In his liquidity preference framework, Keynes assumed that money has a zero rate of return; thus, when interest rates ________ the expected return on money falls relative to the expected return on bonds, causing the demand for money to ________.

Higher expected interest rates in the future ________ the demand for long-term bonds and shift the demand curve to the ________.

A decrease in the expected rate of inflation will ________ the expected return on bonds relative to that on ________ assets.

Identify and describe three factors that cause the supply curve for bonds to shift.

A decline in the price level causes the demand for money to ________ and the demand curve to shift to the ________