Question 1

If there is an excess demand for money, individuals ________ bonds, causing interest rates to ________.

Accepted Answer

A)  sell; rise 
B)  sell; fall 
C)  buy; rise 
D)  buy; fall

Question 2

If the interest rate on a bond is above the equilibrium interest rate, there is an excess ________ for bonds and the bond price will ________.

Accepted Answer

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

Question 3

An increase in the expected inflation rate 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 4

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

Accepted Answer

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

Question 5

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 6

Everything else held constant, an increase in the liquidity of bonds results in a ________ in demand for bonds and the demand curve shifts to the ________.

Accepted Answer

A)  rise; right 
B)  rise; left 
C)  fall; right 
D)  fall; left

Question 7

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

Question 8

The demand curve for bonds has the usual downward slope, indicating that at ________ prices of the bond, everything else equal, the ________ is higher.

Accepted Answer

A)  higher; demand 
B)  higher; quantity demanded 
C)  lower; demand 
D)  lower; quantity demanded

Question 9

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

Accepted Answer

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

Question 10

If brokerage commissions on stocks fall, everything else held constant, the demand for bonds ________, the price of bonds ________, and the interest rate ________.

Accepted Answer

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

Question 11

-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

Accepted Answer

A)  Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation. 
B)  liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation. 
C)  liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation. 
D)  Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.

Question 12

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 13

-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

Accepted Answer

A)  Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation. 
B)  liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation. 
C)  liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation. 
D)  Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.

Question 14

In the market for money, an interest rate below equilibrium results in an excess ________ money and the interest rate will ________.

Accepted Answer

A)  demand for; rise 
B)  demand for; fall 
C)  supply of; fall 
D)  supply of; rise

Question 15

Keynes assumed that money has ________ rate of return.

Accepted Answer

A)  a positive 
B)  a negative 
C)  a zero 
D)  an increasing

Question 16

The demand for gold increases, other things equal, when

Accepted Answer

A)  the market for silver becomes more liquid. 
B)  interest rates are expected to rise. 
C)  interest rates are expected to fall. 
D)  real estate prices are expected to increase.

Question 17

-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

Accepted Answer

A)  liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. 
B)  liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. 
C)  liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation. 
D)  liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.

Question 18

Discovery of new gold in Alaska will ________ the ________ of gold, ________ its price, everything else held constant.

Accepted Answer

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

Question 19

An increase in the expected rate of inflation will ________ the expected return on bonds relative to the that on ________ assets, everything else held constant.

Accepted Answer

A)  reduce; financial 
B)  reduce; real 
C)  raise; financial 
D)  raise; real

Question 20

When the interest rate is above the equilibrium interest rate, there is an excess ________ money and the interest rate will ________.

Accepted Answer

A)  demand for; rise 
B)  demand for; fall 
C)  supply of; fall 
D)  supply of; rise

Exam 5: The Behavior of Interest Rates

If there is an excess demand for money, individuals bonds, causing interest rates to .

If the interest rate on a bond is above the equilibrium interest rate, there is an excess for bonds and the bond price will .

An increase in the expected inflation rate will the for gold, its price, everything else held constant.

When the interest rate on a bond is 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 .

Everything else held constant, an increase in the liquidity of bonds results in a in demand for bonds and the demand curve shifts to the .

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

The demand curve for bonds has the usual downward slope, indicating that at prices of the bond, everything else equal, the is higher.

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

If brokerage commissions on stocks fall, everything else held constant, the demand for bonds , the price of bonds , and the interest rate .

-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

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.

-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

In the market for money, an interest rate below equilibrium results in an excess money and the interest rate will .

Keynes assumed that money has ________ rate of return.

The demand for gold increases, other things equal, when

-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

Discovery of new gold in Alaska will the of gold, its price, everything else held constant.

An increase in the expected rate of inflation will the expected return on bonds relative to the that on assets, everything else held constant.

When the interest rate is above the equilibrium interest rate, there is an excess money and the interest rate will .