Question 1

Everything else held constant,when the government has higher budget deficits

Accepted Answer

A) the demand curve for bonds shifts to the left and the interest rate rises. 
B) the demand curve for bonds shifts to the left and the interest rate falls. 
C) the supply curve for bonds shifts to the right and the interest rate falls. 
D) the supply curve for bonds shifts to the right and the interest rate rises.

Question 2

-In the figure above,the factor responsible for the decline in the interest rate is

Accepted Answer

A) a decline the price level. 
B) a decline in income. 
C) an increase in the money supply. 
D) a decline in the expected inflation rate.

Question 3

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

Accepted Answer

A) falls; supply 
B) falls; quantity supplied 
C) rises; supply 
D) rises; quantity supplied

Question 4

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

Accepted Answer

A) an expansion in overall economic activity. 
B) a decrease in expected inflation. 
C) a decrease in government deficits. 
D) a business cycle recession.

Question 5

A return to the gold standard,that is,using gold for money will ________ the ________ for gold,________ its price,everything else held constant.

Accepted Answer

A) increase; demand; increasing 
B) decrease; demand; decreasing 
C) increase; supply; increasing 
D) decrease; supply; increasing

Question 6

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

Accepted Answer

A) supply; supply; right 
B) supply; supply; left 
C) demand; demand; right 
D) demand; demand; left

Question 7

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

Accepted Answer

A) above; rise 
B) above; fall 
C) below; fall 
D) below; rise

Question 8

If the expected return on bonds increases,all else equal,the demand for bonds increases,the price of bonds ________,and the interest rate ________.

Accepted Answer

A) increases; decreases 
B) increases; increases 
C) decreases; decreases 
D) decreases; increases

Question 9

A situation in which the quantity of bonds supplied exceeds the quantity of bonds demanded is called a condition of excess supply; because people want to sell ________ bonds than others want to buy,the price of bonds will ________.

Accepted Answer

A) fewer; fall 
B) fewer; rise 
C) more; fall 
D) more; rise

Question 10

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

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase

Question 11

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

Accepted Answer

A) larger; fast 
B) larger; slow 
C) smaller; slow 
D) smaller; fast

Question 12

Everything else held constant,if the expected return on U.S.Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent,then the expected return of corporate bonds ________ relative to U.S.Treasury bonds and the demand for corporate bonds ________.

Accepted Answer

A) rises; rises 
B) rises; falls 
C) falls; rises 
D) falls; falls

Question 13

The interest rate falls when either the demand for bonds ________ or the supply of bonds ________.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases

Question 14

The demand for Picasso paintings rises (holding everything else equal)when

Accepted Answer

A) stocks become easier to sell. 
B) people expect a boom in real estate prices. 
C) Treasury securities become riskier. 
D) people expect gold prices to rise.

Question 15

-In the figure above,the decrease in the interest rate from i1 to i2 can be explained by

Accepted Answer

A) a decrease in money growth. 
B) a decline in the expected price level. 
C) an increase in income. 
D) an increase in the expected price level.

Question 16

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

Accepted Answer

A) demand; demand 
B) demand; supply 
C) supply; supply 
D) supply; equilibrium

Question 17

Everything else held constant,if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent,then the expected return of holding RST stock ________ relative to XYZ stock and demand for XYZ stock ________.

Accepted Answer

A) rises; rises 
B) rises; falls 
C) falls; rises 
D) falls; falls

Question 18

When rare coin prices become volatile,the ________ curve for bonds shifts to the ________,everything else held constant.

Accepted Answer

A) demand; right 
B) demand; left 
C) supply; right 
D) supply; left

Question 19

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 ________.

Accepted Answer

A) expected inflation; bonds 
B) expected inflation; money 
C) government budget deficits; bonds 
D) government budget deficits; money

Question 20

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

Accepted Answer

A) demand; decreases; fall 
B) demand; increases; rise 
C) supply; increases; rise 
D) supply; decreases; fall

Exam 5: The Behavior of Interest Rates

Everything else held constant,when the government has higher budget deficits

-In the figure above,the factor responsible for the decline in the interest rate is

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

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

A return to the gold standard,that is,using gold for money will the for gold, its price,everything else held constant.

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

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

If the expected return on bonds increases,all else equal,the demand for bonds increases,the price of bonds ,and the interest rate .

A situation in which the quantity of bonds supplied exceeds the quantity of bonds demanded is called a condition of excess supply; because people want to sell bonds than others want to buy,the price of bonds will .

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

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

Everything else held constant,if the expected return on U.S.Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent,then the expected return of corporate bonds relative to U.S.Treasury bonds and the demand for corporate bonds .

The interest rate falls when either the demand for bonds or the supply of bonds .

The demand for Picasso paintings rises (holding everything else equal) when

-In the figure above,the decrease in the interest rate from i₁ to i₂ can be explained by

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

Everything else held constant,if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent,then the expected return of holding RST stock relative to XYZ stock and demand for XYZ stock .

When rare coin prices become volatile,the curve for bonds 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 .

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