The Behavior of Interest Rates:) 1 Multiple Choice

130Frederic S.
MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition
Chapter 5
The Behavior of Interest Rates
)1
Multiple Choice
()a
()b
()c
()d
()e
If wealth increases, the demand for stocks _____ and that of long-term bonds _____.
increases; increases
increases; decreases
decreases; decreases
decreases; increases
Answer:
Question Status: Previous Edition
()f
()g
()h
()i
()j
If wealth decreases, the demand for stocks _____ and that of long-term bonds _____.
Answer:
()k
If wealth decreases, the demand for common stocks _____ and that of long-term bonds
_____.
()l increases; increases
()m increases; decreases
()n decreases; decreases
()o decreases; increases
Answer:
()p
()q
()r
()s
()t
()u
A decrease in wealth
increases the demand for stocks.
increases the demand for bonds.
has no effect on bond demand.
increases the demand for housing.
reduces the demand for housing.
Answer:
Question Status: New
131Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition
()v
If the expect return on LM stock increases from 3 to 6 percent, and the return on OP stock
increases from 6 to 12 percent, the expected return of holding LM stock ________ relative to
OP stock and the demand for LM stock _________.
()w rises; rises
()x rises; falls
()y falls; falls
()z falls; rises
()aaremains unchanged; remains unchanged
Answer:
()bb
If the expected return on ABC stock rises from 5 to 10 percent and the expected return on
CBS stock is unchanged, then the expected return of holding CBS stock _____ relative to ABC
stock and the demand for CBS stock _____.
()ccrises; rises
()dd
rises; falls
()eefalls; rises
()ff falls; falls
Answer:
()gg
If the expected return on ABC stock falls from 10 to 5 percent and the expected return on
CBS stock is unchanged, then the expected return of holding CBS stock _____ relative to ABC
stock and the demand for CBS stock _____.
()hh
rises; rises
()ii rises; falls
()jj falls; rises
()kk
falls; falls
Answer:
Question Status: Revised
()ll
If the expected return on ABC stock is unchanged and the expected return on CBS stock
falls from 10 to 5 percent, then the expected return of holding CBS stock _____ relative to ABC
stock and the demand for ABC stock _____.
()mm rises; rises
()nn
rises; falls
()oo
falls; rises
()pp
falls; falls
Answer:
Question Status: Revised
Chapter 5The Behavior of Interest Rates132
()qq
If the expected return on NBC stock rises from 5 to 10 percent and the expected return on
CBS stock rises from 12 to 18 percent, then the expected return of holding CBS stock _____
relative to NBC stock and the demand for CBS stock _____.
()rr rises; rises
()ss rises; falls
()tt falls; rises
()uu
falls; falls
Answer:
()vv
If the expected return on CBS stock rises from 5 to 10 percent and the expected return on
NBC stock rises from 12 to 18 percent, then the expected return of holding CBS stock _____
relative to NBC stock and the demand for CBS stock _____.
()ww rises; rises
()xx
rises; falls
()yy
falls; rises
()zzfalls; falls
Answer:
()aaa If the expected return on U.S. Treasury bonds falls from 10 to 5 percent and the expected
return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock
_____ relative to U.S. Treasury bonds and the demand for GE stock _____.
()bbb rises; rises
()ccc rises; falls
()ddd falls; rises
()eee falls; falls
Answer:
()fff
If the expected return on U.S. Treasury bonds rises from 5 to 10 percent and the expected
return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock
_____ relative to U.S. Treasury bonds and the demand for GE stock _____.
()ggg rises; rises
()hhh rises; falls
()iii falls; rises
()jjj falls; falls
Answer:
()kkk If housing prices are suddenly expected to shoot up, then, other things equal, the demand for
houses will _____ and that of Treasury bills will _____.
()lll increase; increase
()mmm increase; decrease
()nnn decrease; decrease
()ooo decrease; increase
Answer:
()ppp If interest rates on Treasury bonds are suddenly expected to shoot up, then, other things
equal, the demand for houses will _____ and that of Treasury bonds will _____.
()qqq increase; increase
()rrr
increase; decrease
()sss decrease; decrease
()ttt decrease; increase
Answer:
()uuu If interest rates on Treasury bonds are suddenly expected to drop, then, other things equal,
the demand for houses will _____ and that of Treasury bonds will _____.
()vvv increase; increase
()www increase; decrease
()xxx decrease; decrease
()yyy decrease; increase
Answer:
()zzz If stock prices are expected to drop dramatically, then, other things equal, the demand for
stocks will _____ and that of Treasury bills will _____.
()aaaa increase; increase
()bbbb increase; decrease
()cccc decrease; decrease
()dddd decrease; increase
Answer:
()eeee When people begin to expect a large stock market decline, the demand curve for bonds
shifts to the _____ and the interest rate _____.
()ffff right; rises
()gggg right; falls
()hhhh left; falls
()iiii
left; rises
Answer:
()jjjj When people begin to expect a run up in large stock market, the demand curve for bonds
shifts to the _____ and the interest rate _____.
()kkkk right; rises
()llll
right; falls
()mmmm left; falls
()nnnn left; rises
Answer:
()oooo If the expected return on RST stock falls from 8 to 5 percent and the expected return on
XYZ stock rises from 3 to 4 percent, then the expected return of holding XYZ stock ______
relative to RST stock and demand for XYZ stock ______.
()pppp rises; rises
()qqqq rises; falls
()rrrr falls; rises
()ssss falls; falls
Answer:
()tttt
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 _____.
()uuuu rises; rises
()vvvv rises; falls
()wwww falls; rises
()xxxx falls; falls
Answer:
()yyyy 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 _____.
()zzzz rises; rises
()aaaaa rises; falls
()bbbbb falls; rises
()ccccc falls; falls
Answer:
()ddddd For a holding period of one year the expected return on a consol is _____ the higher is the
price of the consol today, and _____ the higher is the price of the consol next year.
()eeeee higher; higher
()fffff higher; lower
()ggggg lower; higher
()hhhhh lower; lower
Answer:
()iiiii Holding the expected return on bonds constant, an increase in the expected return on
common stocks would _____ the demand for bonds, shifting the demand curve to the _____.
()jjjjj decrease; left
()kkkkk decrease; right
()lllll increase; left
()mmmmm
increase; right
Answer:
()nnnnn Holding the expected return on bonds constant, a decrease in the expected return on stocks
would _____ the demand for bonds, shifting the demand curve to the _____.
()ooooo decrease; left
()ppppp decrease; right
()qqqqq increase; left
()rrrrr increase; right
Answer:
()sssss As the price of a bond falls and the expected return _____, bonds become _____ attractive
to investors.
()ttttt falls; less
()uuuuu falls; more
()vvvvv rises; less
()wwwww
rises; more
Answer:
()xxxxx As the price of a bond _____ and the expected return _____, bonds become more attractive
to investors and the quantity demanded rises.
()yyyyy falls; rises
()zzzzz falls; falls
()aaaaaa rises; rises
()bbbbbb rises; falls
Answer:
()cccccc If interest rates are expected to rise in the future, the demand for long-term bonds _____
and the demand curve shifts to the _____.
()dddddd rises; right
()eeeeee rises; left
()ffffff falls; right
()gggggg falls; left
Answer:
()hhhhhh If interest rates are expected to fall in the future, the demand for long-term bonds today
_____ and the demand curve shifts to the _____.
()iiiiii rises; right
()jjjjjj rises; left
()kkkkkk falls; right
()llllll falls; left
Answer:
()mmmmmm
Higher expected interest rates in the future ____ the demand for long-term bonds
today and shift the demand curve to the _____.
()nnnnnn increase; left
()oooooo increase; right
()pppppp decrease; left
()qqqqqq decrease; right
Answer:
()rrrrrr Lower expected interest rates in the future ____ the demand for long-term bonds today and
shift the demand curve to the _____.
()ssssss increase; left
()tttttt increase; right
()uuuuuu decrease; left
()vvvvvv decrease; right
Answer:
()wwwwww
The reduction of brokerage commissions for trading common stocks that occurred
in 1975 caused the demand for bonds to _____ and the demand curve to shift to the _____.
()xxxxxx fall; right
()yyyyyy fall, left
()zzzzzz rise; right
()aaaaaaa rise; left
Answer:
()bbbbbbb
If fluctuations in interest rates become smaller, then, other things equal, the
demand for stocks _____ and the demand for long-term bonds _____.
()ccccccc increases; increases
()ddddddd
()eeeeeee decreases; decreases
()fffffff decreases; increases
Answer:
()ggggggg
If fluctuations in interest rates become larger, then, other things equal, the demand
for stocks _____ and the demand for long-term bonds _____.
()hhhhhhh
()iiiiiii increases; decreases
()jjjjjjj decreases; decreases
()kkkkkkk
Answer:
()lllllll If the price of gold becomes more volatile, then, other things equal, the demand for stocks
will _____ and the demand for antiques will _____.
()mmmmmmm increase; increase
()nnnnnnn
increase; decrease
()ooooooo
decrease; decrease
()ppppppp
decrease; increase
Answer:
()qqqqqqq
If the price of gold becomes less volatile, then, other things equal, the demand for
stocks will _____ and the demand for antiques will _____.
()rrrrrrr increase; increase
()sssssss increase; decrease
()ttttttt decrease; decrease
()uuuuuuu
decrease; increase
Answer:
()vvvvvvv
If fluctuations in interest rates become greater, then, other things equal, the
demand for common stocks _____ and that of long-term bonds _____.
()wwwwwww
()xxxxxxx
()yyyyyyy
()zzzzzzz decreases; increases
Answer:
()aaaaaaaa
If interest rates become more stable, then, other things equal, the demand for
common stocks _____ and that of long-term bonds _____.
()bbbbbbbb
()cccccccc
()dddddddd
()eeeeeeee
Answer:
()ffffffffIf the price of real estate becomes less volatile, then, other things equal, the demand for
stocks will _____ and that of antiques will _____.
()gggggggg
increase; increase
()hhhhhhhh
increase; decrease
()iiiiiiii decrease; decrease
()jjjjjjjj decrease; increase
Answer:
()kkkkkkkk
When stock prices become less volatile, the demand curve for bonds shifts to the
_____ and the interest rate _____.
()llllllll right; rises
()mmmmmmmm right; falls
()nnnnnnnn
left; falls
()oooooooo
left; rises
Answer:
()pppppppp
When stock prices become _____ volatile, the demand curve for bonds shifts to
the _____ and the interest rate _____.
()qqqqqqqq
more; right; rises
()rrrrrrrr more; left; falls
()ssssssss less; left; falls
()tttttttt less; left; rises
()uuuuuuuu
less; right; falls
Answer:
()vvvvvvvv
When stock prices become more volatile, the demand curve for bonds shifts to the
()wwwwwwww right; rises
()xxxxxxxx
right; falls
()yyyyyyyy
left; falls
()zzzzzzzz
left; rises
Answer:
()aaaaaaaaa
When stock prices become _____ volatile, the demand curve for bonds shifts to
()bbbbbbbbb
more; right; rises
()ccccccccc
more; left; falls
()ddddddddd
less; left; falls
()eeeeeeeee
less; left; rises
()fffffffff more; right; falls
Answer:
()ggggggggg
All else the same, an increase in the volatility of the stock market causes the
demand for bonds to _____ and the demand curve to shift to the _____.
()hhhhhhhhh
fall; right
()iiiiiiiii fall; left
()jjjjjjjjj rise; right
()kkkkkkkkk
rise; left
Answer:
()lllllllll All else the same, a decrease in the volatility of the stock market causes the demand for
bonds to _____ and the demand curve to shift to the _____.
()mmmmmmmmm
fall; right
()nnnnnnnnn
fall; left
()ooooooooo
rise; right
()ppppppppp
rise; left
Answer:
()qqqqqqqqq
When bond interest rates become more volatile, the demand for bonds _____ and
the interest rate _____.
()rrrrrrrrr increases; rises
()sssssssss
increases; falls
()ttttttttt decreases; falls
()uuuuuuuuu
decreases; rises
Answer:
()vvvvvvvvv
When bond interest rates become less volatile, the demand for bonds _____ and
the interest rate _____.
()wwwwwwwww increases; rises
()xxxxxxxxx
increases; falls
()yyyyyyyyy
decreases; falls
()zzzzzzzzz
decreases; rises
Answer:
()aaaaaaaaaa
An increase in the riskiness of bonds relative to alternative assets causes the
demand for bonds to _____ and the demand curve to shift to the _____.
()bbbbbbbbbb
rise; right
()cccccccccc
rise; left
()dddddddddd
fall; right
()eeeeeeeeee
fall; left
Answer:
()ffffffffff An increase in the riskiness of alternative assets relative to bonds causes the demand for
bonds to _____ and the demand curve to shift to the _____.
()gggggggggg
rise; right
()hhhhhhhhhh
rise; left
()iiiiiiiiii fall; right
()jjjjjjjjjj fall; left
Answer:
()kkkkkkkkkk
When rare coin prices become volatile, the _________ curve for bonds shifts to
the _______.
()llllllllll demand; right
()mmmmmmmmmm
demand; left
()nnnnnnnnnn
supply; right
()oooooooooo
supply; left
()pppppppppp
supply and demand; left
Answer:
Question Status: Study Guide
()qqqqqqqqqq
When bonds become more widely traded, and as a consequence the market
becomes more liquid, the demand curve for bonds shifts to the _____ and the interest rate
_____.
()rrrrrrrrrrright; rises
()ssssssssss
right; falls
()tttttttttt left; falls
()uuuuuuuuuu
left; rises
Answer:
()vvvvvvvvvv
When bonds become less widely traded, and as a consequence the market
becomes less liquid, the demand curve for bonds shifts to the _____ and the interest rate _____.
()wwwwwwwwww
right; rises
()xxxxxxxxxx
right; falls
()yyyyyyyyyy
left; falls
()zzzzzzzzzz
left; rises
Answer:
()aaaaaaaaaaa
An increase in the liquidity of bonds results in a _____ in demand for bonds and
the demand curve shifts to the _____.
()bbbbbbbbbbb rise; right
()ccccccccccc
rise; left
()ddddddddddd fall; right
()eeeeeeeeeee
fall; left
Answer:
()fffffffffff
Increased liquidity of alternative assets _____ the demand for bonds and shifts the
demand curve to the _____.
()ggggggggggg lowers; right
()hhhhhhhhhhh lowers; left
()iiiiiiiiiii raises; right
()jjjjjjjjjjj raises; left
Answer:
()kkkkkkkkkkk An increase in the expected rate of inflation will _____ the expected return on
bonds relative to the that on _____ assets.
()lllllllllll reduce; financial
()mmmmmmmmmmm reduce; real
()nnnnnnnnnnn raise; financial
()ooooooooooo raise; real
Answer:
()ppppppppppp An increase in the expected rate of inflation will _____ the expected return on
bonds relative to the that on _____ assets, and shift the _____ curve to the left.
()qqqqqqqqqqq reduce; financial; demand
()rrrrrrrrrrr
reduce; real; demand
()sssssssssss
raise; financial; supply
()ttttttttttt raise; real; supply
Answer:
()uuuuuuuuuuu A decrease in the expected rate of inflation will _____ the expected return on
bonds relative to the that on _____ assets.
()vvvvvvvvvvv reduce; financial
()wwwwwwwwwww
reduce; real
()xxxxxxxxxxx raise; financial
()yyyyyyyyyyy raise; real
Answer:
()zzzzzzzzzzz
A decrease in the expected rate of inflation will _____ the expected return on
bonds relative to the that on _____ assets, and shift the _____ curve to the left.
()aaaaaaaaaaaa reduce; financial; demand
()bbbbbbbbbbbb reduce; real; demand
()cccccccccccc raise; financial; supply
()dddddddddddd raise; real; supply
()eeeeeeeeeeee raise; real; demand
Answer:
()ffffffffffff
An increase in the expected rate of inflation causes the demand for bonds to
_____ and the demand curve to shift to the _____.
()gggggggggggg fall; right
()hhhhhhhhhhhh fall; left
()iiiiiiiiiiiirise; right
()jjjjjjjjjjjjrise; left
Answer:
()kkkkkkkkkkkk A decrease in the expected rate of inflation causes the demand for bonds to _____
and the demand curve to shift to the _____.
()llllllllllllfall; right
()mmmmmmmmmmmm fall; left
()nnnnnnnnnnnn rise; right
()oooooooooooo rise; left
Answer:
()pppppppppppp The demand curve for bonds has the usual downward slope, indicating that at
_____ prices of the bond, everything else equal, the _____ is higher.
()qqqqqqqqqqqq higher; demand
()rrrrrrrrrrrr
higher; quantity demanded
()ssssssssssss
lower; demand
()ttttttttttttlower; quantity demanded
Answer:
()uuuuuuuuuuuu Factors that increase the demand for bonds include
()vvvvvvvvvvvv an increase in the inflation rate.
()wwwwwwwwwwww an increase in the liquidity of common stocks.
()xxxxxxxxxxxx a decrease in the volatility of stock prices.
()yyyyyyyyyyyy all of the above.
()zzzzzzzzzzzz none of the above.
Answer:
()aaaaaaaaaaaaa Factors that increase the demand for bonds include
()bbbbbbbbbbbbb an increase in the inflation rate.
()ccccccccccccc an decrease in the liquidity of common stocks.
()ddddddddddddd a decrease in the volatility of stock prices.
()eeeeeeeeeeeee all of the above.
Answer:
()fffffffffffff
Factors that increase the demand for bonds include
()ggggggggggggg a decrease in the inflation rate.
()hhhhhhhhhhhhh an increase in the liquidity of stocks.
()iiiiiiiiiiiii
a decrease in the volatility of stock prices.
()jjjjjjjjjjjjj
all of the above.
()kkkkkkkkkkkkk none of the above.
Answer:
()lllllllllllll
()mmmmmmmmmmmmm
a decrease in the inflation rate.
()nnnnnnnnnnnnn an increase in the volatility of stock prices.
()ooooooooooooo an increase in the liquidity of stocks.
()ppppppppppppp all of the above.
()qqqqqqqqqqqqq only (a) and (b) of the above.
Answer:
()rrrrrrrrrrrrr
()sssssssssssss
an increase in the volatility of stock prices.
()ttttttttttttt
a decrease in the expected returns on stocks.
()uuuuuuuuuuuuu a decrease in the inflation rate.
()vvvvvvvvvvvvv all of the above.
()wwwwwwwwwwwww only (a) and (b) of the above.
Answer:
()xxxxxxxxxxxxx Factors that increase the demand for bonds include
()yyyyyyyyyyyyy an increase in the volatility of stock prices.
()zzzzzzzzzzzzz an increase in the expected returns on stocks.
()aaaaaaaaaaaaaa an increase in the inflation rate.
()bbbbbbbbbbbbbb
only (b) and (c) of the above.
Answer:
()cccccccccccccc Factors that decrease the demand for bonds include
()dddddddddddddd
()eeeeeeeeeeeeee a decrease in the expected returns on stocks.
()ffffffffffffff
()gggggggggggggg
all of the above.
()hhhhhhhhhhhhhh
none of the above.
Answer:
()iiiiiiiiiiiiii
Factors that decrease the demand for bonds include
()jjjjjjjjjjjjjj
()kkkkkkkkkkkkkk
an increase in the expected returns on stocks.
()llllllllllllll
()mmmmmmmmmmmmmm
all of the above.
Answer:
()nnnnnnnnnnnnnn
()oooooooooooooo
()pppppppppppppp
a decrease in the expected returns on stocks.
()qqqqqqqqqqqqqq
()rrrrrrrrrrrrrr
a decrease in the riskiness of stocks.
Answer:
()ssssssssssssss Factors that decrease the demand for bonds include
()tttttttttttttt
an increase in the inflation rate.
()uuuuuuuuuuuuuu
an increase in the liquidity of stocks.
()vvvvvvvvvvvvvv
a decrease in the volatility of stock prices.
()wwwwwwwwwwwwww
all of the above.
()xxxxxxxxxxxxxx
none of the above.
Answer:
()yyyyyyyyyyyyyy
()zzzzzzzzzzzzzz an increase in the liquidity of stocks.
()aaaaaaaaaaaaaaaa decrease in the volatility of stock prices.
()bbbbbbbbbbbbbbb
()cccccccccccccccall of the above.
()ddddddddddddddd
only (a) and (b) of the above.
()eeeeeeeeeeeeeeeFactors that decrease the demand for bonds include
()fffffffffffffff
()ggggggggggggggg
()hhhhhhhhhhhhhhh
()iiiiiiiiiiiiiii
all of the above.
()jjjjjjjjjjjjjjj
Answer:
()kkkkkkkkkkkkkkk
()lllllllllllllll
()mmmmmmmmmmmmmmm
()nnnnnnnnnnnnnnn
an increase in the federal government budget deficit.
()ooooooooooooooo
Answer:
()ppppppppppppppp
The demand for Jackson Pollack paintings rises (holding everything else
equal) when:
()qqqqqqqqqqqqqqq
stocks become easier to sell.
()rrrrrrrrrrrrrrr
people expect a boom in real estate prices.
()sssssssssssssss Treasury securities become riskier.
()ttttttttttttttt
people suddenly expect gold prices to rise.
Answer:
()uuuuuuuuuuuuuuu
The demand for Charles M. Russell paintings declines (holding
everything else equal) when:
()vvvvvvvvvvvvvvv
()wwwwwwwwwwwwwww
()xxxxxxxxxxxxxxx
Treasury securities become riskier.
()yyyyyyyyyyyyyyy
all of the above occur.
()zzzzzzzzzzzzzzzboth (a) and (b) of the above occur.
Answer:
()aaaaaaaaaaaaaaaa
The demand for Charles M. Russell paintings declines (holding
everything else equal) when:
()bbbbbbbbbbbbbbbb
()cccccccccccccccc
()dddddddddddddddd
people suddenly expect gold prices to rise.
()eeeeeeeeeeeeeeee
all of the above occur.
()ffffffffffffffff
both (a) and (b) of the above occur.
Answer:
()gggggggggggggggg
The demand for silver bullion decreases, other things equal, when
()hhhhhhhhhhhhhhhh
the gold market is suddenly expected to boom.
()iiiiiiiiiiiiiiii
the market for silver bullion becomes more liquid.
()jjjjjjjjjjjjjjjj
wealth grows rapidly.
()kkkkkkkkkkkkkkkk
any of the above occurs.
Answer:
()llllllllllllllll
The demand for silver bullion increases, other things equal, when
()mmmmmmmmmmmmmmmm the gold market is suddenly expected to boom.
()nnnnnnnnnnnnnnnn
the market for silver bullion becomes more liquid.
()oooooooooooooooo
wealth grows rapidly.
()pppppppppppppppp
()qqqqqqqqqqqqqqqq
either (b) or (c) of the above occurs.
Answer:
()rrrrrrrrrrrrrrrr You would be more willing to purchase U.S. Treasury bonds, other things equal, if
()ssssssssssssssss you inherit $1 million from your Uncle Harry.
()tttttttttttttttt
you expect interest rates to fall.
()uuuuuuuuuuuuuuuu
gold becomes more liquid.
()vvvvvvvvvvvvvvvv
()wwwwwwwwwwwwwwww
either (a) or (b) of the above occurs.
Answer:
()xxxxxxxxxxxxxxxx
equal, if
()yyyyyyyyyyyyyyyy
()zzzzzzzzzzzzzzzz
()aaaaaaaaaaaaaaaaa
()bbbbbbbbbbbbbbbbb
()ccccccccccccccccc
You would be more willing to purchase U.S. Treasury bonds, other things
you inherit $1 million from your Uncle Harry.
you expect interest rates to rise.
either (b) or (c) of the above occurs.
Answer:
()ddddddddddddddddd You would be less willing to purchase U.S. Treasury bonds, other things
equal, if
()eeeeeeeeeeeeeeeee
you inherit $1 million from your Uncle Harry.
()fffffffffffffffff you expect interest rates to fall.
()ggggggggggggggggg gold becomes more liquid.
()hhhhhhhhhhhhhhhhh any of the above occurs.
Answer:
()iiiiiiiiiiiiiiiii
You would be less willing to purchase U.S. Treasury bonds, other things equal, if
()jjjjjjjjjjjjjjjjj
brokerage fees for trading stocks decline.
()kkkkkkkkkkkkkkkkk you expect interest rates to rise.
()lllllllllllllllll
()mmmmmmmmmmmmmmmmm
()nnnnnnnnnnnnnnnnn either (b) or (c) of the above occurs.
Answer:
()ooooooooooooooooo You would be more willing to buy AT&T bonds (holding everything else
constant) if
()ppppppppppppppppp the brokerage commissions on bond sales become cheaper.
()qqqqqqqqqqqqqqqqq interest rates are expected to rise.
()rrrrrrrrrrrrrrrrr you had suffered big losses in the stock market.
()sssssssssssssssssyou expected jewelry to appreciate sharply in value.
()ttttttttttttttttt
none of the above.
Answer:
()uuuuuuuuuuuuuuuuu You would be less willing to buy AT&T bonds (holding everything else
constant) if
()vvvvvvvvvvvvvvvvv the brokerage commissions on bond sales rise.
()wwwwwwwwwwwwwwwww interest rates are expected to rise.
()xxxxxxxxxxxxxxxxx you expected jewelry to appreciate sharply in value.
()yyyyyyyyyyyyyyyyy
()zzzzzzzzzzzzzzzzz
either (a) or (c) of the above occurs.
Answer:
()aaaaaaaaaaaaaaaaaa
Holding everything else constant,
()bbbbbbbbbbbbbbbbbb if asset As risk rises relative to that of alternative assets, the demand for
asset A will fall.
()cccccccccccccccccc
the more liquid asset A, relative to alternative assets, the greater will be
the demand for asset A.
()dddddddddddddddddd the lower the expected return to asset A relative to alternative assets, the
greater will be the demand for asset A.
()eeeeeeeeeeeeeeeeee
all of the above.
()ffffffffffffffffff only (a) and (b) of the above.
Answer:
()gggggggggggggggggg Holding everything else constant,
()hhhhhhhhhhhhhhhhhh if stock ABCs risk rises relative to that of alternative assets, the demand
for stock ABC will fall.
()iiiiiiiiiiiiiiiiii
the less liquid is stock ABC, relative to alternative assets, the greater will be the
demand for stock ABC.
()jjjjjjjjjjjjjjjjjj
the lower the expected return to stock ABC relative to alternative assets, the
greater will be the demand for stock ABC.
()kkkkkkkkkkkkkkkkkk only (a) and (b) of the above.
Answer:
()llllllllllllllllll
Holding everything else constant,
()mmmmmmmmmmmmmmmmmm
if the risk of XYZ stock rises relative to that of
alternative assets, the demand XYZ stock will fall.
()nnnnnnnnnnnnnnnnnn the more liquid is stock XYZ, relative to alternative assets, the greater
will be the demand for stock XYZ.
()oooooooooooooooooo the higher the expected return to stock XYZ relative to alternative assets,
the greater will be the demand for stock XYZ.
()pppppppppppppppppp all of the above.
()qqqqqqqqqqqqqqqqqq only (a) and (b) of the above.
Answer:
()rrrrrrrrrrrrrrrrrr Holding everything else constant,

()ssssssssssssssssss
if asset As risk rises relative to that of alternative assets, the demand will
increase for asset A.
()tttttttttttttttttt
the more liquid is asset A, relative to alternative assets, the greater will be the
demand for asset A.
()uuuuuuuuuuuuuuuuuu the lower the expected return to asset A relative to alternative assets, the
greater will be the demand for asset A.
()vvvvvvvvvvvvvvvvvv only (a) and (b) of the above.
Answer:
()wwwwwwwwwwwwwwwwww The demand for gold bullion increases, other things equal, when
()xxxxxxxxxxxxxxxxxx the market for silver bullion becomes more liquid.
()yyyyyyyyyyyyyyyyyy interest rates are expected to rise.
()zzzzzzzzzzzzzzzzzz
interest rates are expected to fall.
()aaaaaaaaaaaaaaaaaaa
either (a) or (b) of the above occurs.
Answer:
()bbbbbbbbbbbbbbbbbbb You would be less willing to purchase U.S. Treasury bonds, other things
equal, if
()ccccccccccccccccccc
you expect interest rates to fall.
()ddddddddddddddddddd gold becomes more liquid.
()eeeeeeeeeeeeeeeeeee
you expect bond prices to rise.
()fffffffffffffffffff either (a) or (b) of the above occurs.
Answer:
()ggggggggggggggggggg You would be less willing to purchase U.S. Treasury bonds, other things
equal, if
()hhhhhhhhhhhhhhhhhhh you expect interest rates to rise.
()iiiiiiiiiiiiiiiiiii gold becomes more liquid.
()jjjjjjjjjjjjjjjjjjj you expect bond prices to rise.
()kkkkkkkkkkkkkkkkkkk either (a) or (b) of the above occurs.
Answer:
()lllllllllllllllllll You would be less willing to purchase U.S. Treasury bonds, other things equal, if
()mmmmmmmmmmmmmmmmmmm
you expect interest rates to rise.
()nnnnnnnnnnnnnnnnnnn gold becomes more liquid.
()ooooooooooooooooooo you inherit $1 million from your Uncle Harry.
()ppppppppppppppppppp any of the above occurs.
()qqqqqqqqqqqqqqqqqqq either (a) or (b) of the above occurs.
Answer:
()rrrrrrrrrrrrrrrrrrr The theory of asset demand provides a framework for deciding what factors cause
the demand curve for bonds shift. These factors include changes in the
()sssssssssssssssssss
wealth of investors.
()ttttttttttttttttttt liquidity of bonds relative to alternative assets.
()uuuuuuuuuuuuuuuuuuu expected returns on bonds relative to alternative assets.
()vvvvvvvvvvvvvvvvvvv risk of bonds relative to alternative assets.
()wwwwwwwwwwwwwwwwwww
all of the above.
Answer:
()xxxxxxxxxxxxxxxxxxx In a recession when income and wealth are falling, the demand for bonds
_____ and the demand curve shifts to the _____.
()yyyyyyyyyyyyyyyyyyy falls; right
()zzzzzzzzzzzzzzzzzzz
falls; left
()aaaaaaaaaaaaaaaaaaaa rises; right
()bbbbbbbbbbbbbbbbbbbb
rises; left
Answer:
()cccccccccccccccccccc During business cycle expansions when income and wealth are rising, the
demand for bonds _____ and the demand curve shifts to the _____.
()dddddddddddddddddddd
falls; right
()eeeeeeeeeeeeeeeeeeee falls; left
()ffffffffffffffffffff rises; right
()gggggggggggggggggggg
rises; left
Answer:
()hhhhhhhhhhhhhhhhhhhh
In an expanding economy with growing wealth, the demand for
bonds _____ and the demand curve for bonds shifts to the _____.
()iiiiiiiiiiiiiiiiiiii rises; right
()jjjjjjjjjjjjjjjjjjjj rises; left
()kkkkkkkkkkkkkkkkkkkk
falls; right
()llllllllllllllllllll falls; left
Answer:
()mmmmmmmmmmmmmmmmmmmm In a contracting economy with declining wealth, the
demand for bonds _____ and the demand curve for bonds shifts to the _____.
()nnnnnnnnnnnnnnnnnnnn
rises; right
()oooooooooooooooooooo
rises; left
()pppppppppppppppppppp
falls; right
()qqqqqqqqqqqqqqqqqqqq
falls; left
Answer:
()rrrrrrrrrrrrrrrrrrrr
In an expanding economy with growing wealth, the demand for bonds
_____ and the demand curve for bonds shifts to the _____.
()ssssssssssssssssssss
rises; right
()tttttttttttttttttttt rises; left
()uuuuuuuuuuuuuuuuuuuu
falls; right
()vvvvvvvvvvvvvvvvvvvv
falls; left
Answer:
()wwwwwwwwwwwwwwwwwwww
In a contracting economy with declining wealth, the
demand for bonds _____ and the demand curve for bonds shifts to the _____.
()xxxxxxxxxxxxxxxxxxxx
rises; right
()yyyyyyyyyyyyyyyyyyyy
rises; left
()zzzzzzzzzzzzzzzzzzzz falls; right
()aaaaaaaaaaaaaaaaaaaaa falls; left
Answer:
()bbbbbbbbbbbbbbbbbbbbb
The supply curve for bonds has the usual upward slope,
indicating that as the price _____, ceteris paribus, the _____ increases.
()ccccccccccccccccccccc falls; supply
()ddddddddddddddddddddd
falls; quantity supplied
()eeeeeeeeeeeeeeeeeeeee rises; supply
()fffffffffffffffffffffrises; quantity supplied
Answer:
()ggggggggggggggggggggg
Factors that can cause the supply curve for bonds to shift to the
right include
()hhhhhhhhhhhhhhhhhhhhh
an expansion in overall economic activity.
()iiiiiiiiiiiiiiiiiiiii an increase in expected inflation.
()jjjjjjjjjjjjjjjjjjjjj an increase in government deficits.
()kkkkkkkkkkkkkkkkkkkkk
all of the above.
()lllllllllllllllllllll only (a) and (b) of the above.
Answer:
()mmmmmmmmmmmmmmmmmmmmm Factors that can cause the supply curve for bonds to shift
to the right include
()nnnnnnnnnnnnnnnnnnnnn
()ooooooooooooooooooooo
an increase in expected inflation.
()ppppppppppppppppppppp
a decrease in government deficits.
()qqqqqqqqqqqqqqqqqqqqq
all of the above.
()rrrrrrrrrrrrrrrrrrrrr
Answer:
()sssssssssssssssssssss
Factors that can cause the supply curve for bonds to shift to the right
include
()ttttttttttttttttttttt an expansion in overall economic activity.
()uuuuuuuuuuuuuuuuuuuuu
a decrease in expected inflation.
()vvvvvvvvvvvvvvvvvvvvv
()wwwwwwwwwwwwwwwwwwwww all of the above.
()xxxxxxxxxxxxxxxxxxxxx
Answer:
()yyyyyyyyyyyyyyyyyyyyy
Factors that can cause the supply curve for bonds to shift to the
left include
()zzzzzzzzzzzzzzzzzzzzz a decrease in expected inflation.
()aaaaaaaaaaaaaaaaaaaaaa a decrease in government deficits.
()bbbbbbbbbbbbbbbbbbbbbb
()cccccccccccccccccccccc all of the above.
()dddddddddddddddddddddd
Answer:
()eeeeeeeeeeeeeeeeeeeeee Factors that can cause the supply curve for bonds to shift to the left
include
()ffffffffffffffffffffff
()gggggggggggggggggggggg
()hhhhhhhhhhhhhhhhhhhhhh
an increase in government deficits.
()iiiiiiiiiiiiiiiiiiiiii only (a) and (c) of the above.
Answer:
()jjjjjjjjjjjjjjjjjjjjjj Factors that can cause the supply curve for bonds to shift to the left include
()kkkkkkkkkkkkkkkkkkkkkk
()llllllllllllllllllllll an increase in expected inflation.
()mmmmmmmmmmmmmmmmmmmmmm
()nnnnnnnnnnnnnnnnnnnnnn
all of the above.
()oooooooooooooooooooooo
Answer:
()pppppppppppppppppppppp
During an economic expansion, the supply of bonds _____ and
the supply curve shifts to the _____.
()qqqqqqqqqqqqqqqqqqqqqq
increases; left
()rrrrrrrrrrrrrrrrrrrrrr
increases; right
()ssssssssssssssssssssss decreases; left
()tttttttttttttttttttttt decreases; right
Answer:
()uuuuuuuuuuuuuuuuuuuuuu
During a recession, the supply of bonds _____ and the supply
curve shifts to the _____.
()vvvvvvvvvvvvvvvvvvvvvv
increases; left
()wwwwwwwwwwwwwwwwwwwwww increases; right
()xxxxxxxxxxxxxxxxxxxxxx
decreases; left
()yyyyyyyyyyyyyyyyyyyyyy
decreases; right
Answer: C
()zzzzzzzzzzzzzzzzzzzzzz An increase in expected inflation causes the supply of bonds to _____ and
the supply curve to shift to the _____.
()aaaaaaaaaaaaaaaaaaaaaaa
increase; left
()bbbbbbbbbbbbbbbbbbbbbbb
increase; right
()ccccccccccccccccccccccc
decrease; left
()ddddddddddddddddddddddd
decrease; right
Answer:
()eeeeeeeeeeeeeeeeeeeeeee
Higher government deficits _____ the supply of bonds and shift
the supply curve to the _____.
()fffffffffffffffffffffff
increase; left
()ggggggggggggggggggggggg
increase; right
()hhhhhhhhhhhhhhhhhhhhhhh
decrease; left
()iiiiiiiiiiiiiiiiiiiiiii decrease; right
Answer:
()jjjjjjjjjjjjjjjjjjjjjjj When the inflation rate is expected to increase, the expected return on bonds
relative to real assets falls for any given interest rate; the demand for bonds _____ and the
demand curve shifts to the _____.
()kkkkkkkkkkkkkkkkkkkkkkk
rises; right
()lllllllllllllllllllllll rises; left
()mmmmmmmmmmmmmmmmmmmmmmm
falls; right
()nnnnnnnnnnnnnnnnnnnnnnn
falls; left
Answer:
()ooooooooooooooooooooooo
When the inflation rate is expected to increase, the real cost of
borrowing declines at any given interest rate; the supply of bonds _____ increases and the
supply curve shifts to the _____.
()ppppppppppppppppppppppp
increases; left
()qqqqqqqqqqqqqqqqqqqqqqq
increases; right
()rrrrrrrrrrrrrrrrrrrrrrr
decreases; left
()sssssssssssssssssssssss decreases; right
Answer:
()ttttttttttttttttttttttt When the inflation rate is expected to increase, the expected return on bonds
relative to real assets falls for any given interest rate; the _____ for bonds falls and the _____
curve shifts to the left.
()uuuuuuuuuuuuuuuuuuuuuuu
demand; demand
()vvvvvvvvvvvvvvvvvvvvvvv
demand; supply
()wwwwwwwwwwwwwwwwwwwwwww
supply; demand
()xxxxxxxxxxxxxxxxxxxxxxx
supply; supply
Answer:
()yyyyyyyyyyyyyyyyyyyyyyy
When the inflation rate is expected to increase, the real cost of
borrowing declines at any given interest rate; the _____ of bonds increases and the _____ curve
shifts to the right.
()zzzzzzzzzzzzzzzzzzzzzzz
demand; demand
()aaaaaaaaaaaaaaaaaaaaaaaa
demand; supply
()bbbbbbbbbbbbbbbbbbbbbbbb supply; demand
()cccccccccccccccccccccccc
supply; supply
Answer:
()dddddddddddddddddddddddd An increase in the expected rate of inflation causes the demand
curve for bonds to _____ and the supply curve of bonds to _____.
()eeeeeeeeeeeeeeeeeeeeeeee
fall; fall
()ffffffffffffffffffffffff
fall; rise
()gggggggggggggggggggggggg rise; fall
()hhhhhhhhhhhhhhhhhhhhhhhh rise; rise
Answer:
()iiiiiiiiiiiiiiiiiiiiiiii
A decrease in the expected rate of inflation causes the demand curve for
bonds to _____ and the supply curve of bonds to _____.
()jjjjjjjjjjjjjjjjjjjjjjjj
fall; fall
()kkkkkkkkkkkkkkkkkkkkkkkk fall; rise
()llllllllllllllllllllllll
rise; fall
()mmmmmmmmmmmmmmmmmmmmmmmm rise; rise
Answer:
()nnnnnnnnnnnnnnnnnnnnnnnn When the inflation rate is expected to increase, the _____ for
bonds falls, while the _____ curve shifts to the right.
()oooooooooooooooooooooooo demand; demand
()pppppppppppppppppppppppp demand; supply
()qqqqqqqqqqqqqqqqqqqqqqqq supply; demand
()rrrrrrrrrrrrrrrrrrrrrrrr
supply; supply
Answer:
()ssssssssssssssssssssssss When the inflation rate is expected to increase, the _____ of bonds
increases while the _____ curve shifts to the left.
()tttttttttttttttttttttttt
demand; demand
()uuuuuuuuuuuuuuuuuuuuuuuu demand; supply
()vvvvvvvvvvvvvvvvvvvvvvvv supply; demand
()wwwwwwwwwwwwwwwwwwwwwwww
supply; supply
Answer:
()xxxxxxxxxxxxxxxxxxxxxxxx A decrease in expected inflation shifts the demand for bonds to
the ________, the supply of bonds to the ________, and the interest rate _______.
()yyyyyyyyyyyyyyyyyyyyyyyy right; right; rises
()zzzzzzzzzzzzzzzzzzzzzzzz
right; left; rises
()aaaaaaaaaaaaaaaaaaaaaaaaa
right; left; falls
()bbbbbbbbbbbbbbbbbbbbbbbbb left; left; falls
()ccccccccccccccccccccccccc
left; right; rises
Answer:
()ddddddddddddddddddddddddd When the inflation rate is expected to rise, interest rates will ____;
this result has been termed the _____.
()eeeeeeeeeeeeeeeeeeeeeeeee
fall; Keynes effect
()fffffffffffffffffffffffff
fall; Fisher effect
()ggggggggggggggggggggggggg rise; Pigou effect
()hhhhhhhhhhhhhhhhhhhhhhhhh rise; Fisher effect
()iiiiiiiiiiiiiiiiiiiiiiiii
rise; Keynes effect
Answer:
()jjjjjjjjjjjjjjjjjjjjjjjjj
Expectations of inflation have a major impact on bond prices and interest
rates through the
()kkkkkkkkkkkkkkkkkkkkkkkkk Keynes effect.
()lllllllllllllllllllllllll
Gibson effect.
()mmmmmmmmmmmmmmmmmmmmmmmmm Pigou effect.
()nnnnnnnnnnnnnnnnnnnnnnnnn Fisher effect.
Answer:
()ooooooooooooooooooooooooo The economist Irving Fisher, after whom the Fisher effect is
named, explained why interest rates _____ as the expected rate of inflation _____.
()ppppppppppppppppppppppppp rise; increases
()qqqqqqqqqqqqqqqqqqqqqqqqq rise; stabilizes
()rrrrrrrrrrrrrrrrrrrrrrrrr
rise; decreases
()sssssssssssssssssssssssss fall; increases
()ttttttttttttttttttttttttt
fall; stabilizes
Answer:
()uuuuuuuuuuuuuuuuuuuuuuuuu During a business cycle expansion, the supply of bonds shifts to

the _____ as businesses perceive more profitable investment opportunities, while the demand
for bonds shifts to the _____ as a result of the increase in wealth generated by the economic
expansion.
()vvvvvvvvvvvvvvvvvvvvvvvvv right; left
()wwwwwwwwwwwwwwwwwwwwwwwww
right; right
()xxxxxxxxxxxxxxxxxxxxxxxxx left; left
()yyyyyyyyyyyyyyyyyyyyyyyyy left; right
Answer:
()zzzzzzzzzzzzzzzzzzzzzzzzz
During a business cycle contraction, the supply of bonds shifts to
the _____ as businesses perceive fewer profitable investment opportunities, while the demand
for bonds shifts to the _____ as a result of the decrease in wealth.
()aaaaaaaaaaaaaaaaaaaaaaaaaa
right; left
()bbbbbbbbbbbbbbbbbbbbbbbbbb right; right
()cccccccccccccccccccccccccc
left; left
()dddddddddddddddddddddddddd left; right
Answer:
()eeeeeeeeeeeeeeeeeeeeeeeeee
When the price of a bond is above the equilibrium price, there is
an excess _____ for (of) bonds and price will _____.
()ffffffffffffffffffffffffff
demand; rise
()gggggggggggggggggggggggggg demand; fall
()hhhhhhhhhhhhhhhhhhhhhhhhhh supply; fall
()iiiiiiiiiiiiiiiiiiiiiiiiii
supply; rise
Answer:
()jjjjjjjjjjjjjjjjjjjjjjjjjj
When the price of a bond is below the equilibrium price, there is an
excess _____ for (of) bonds and price will _____.
()kkkkkkkkkkkkkkkkkkkkkkkkkk demand; rise
()llllllllllllllllllllllllll
demand; fall
()mmmmmmmmmmmmmmmmmmmmmmmmmm
supply; fall
()nnnnnnnnnnnnnnnnnnnnnnnnnn supply; rise
Answer:
()oooooooooooooooooooooooooo When the price of a bond is _____ the equilibrium price, there is
an excess supply of bonds and price will _____.
()pppppppppppppppppppppppppp above; rise
()qqqqqqqqqqqqqqqqqqqqqqqqqq above; fall
()rrrrrrrrrrrrrrrrrrrrrrrrrr below; fall
()ssssssssssssssssssssssssss
below; rise
Answer:
()tttttttttttttttttttttttttt
When the price of a bond is _____ the equilibrium price, there is an
excess demand of bonds and price will _____.
()uuuuuuuuuuuuuuuuuuuuuuuuuu above; rise
()vvvvvvvvvvvvvvvvvvvvvvvvvv above; fall
()wwwwwwwwwwwwwwwwwwwwwwwwww below; fall
()xxxxxxxxxxxxxxxxxxxxxxxxxx below; rise
Answer:
()yyyyyyyyyyyyyyyyyyyyyyyyyy When the price of a bond is _____ the equilibrium price, there is
an excess _____ for (of) bonds and price will _____.
()zzzzzzzzzzzzzzzzzzzzzzzzzz
below; demand; rise
()aaaaaaaaaaaaaaaaaaaaaaaaaaa below; demand; fall
()bbbbbbbbbbbbbbbbbbbbbbbbbbb
below; supply; fall
()ccccccccccccccccccccccccccc above; supply; rise
Answer:
()ddddddddddddddddddddddddddd
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 _____.
()eeeeeeeeeeeeeeeeeeeeeeeeeee demand; rise
()fffffffffffffffffffffffffff demand; fall
()ggggggggggggggggggggggggggg
supply; fall
()hhhhhhhhhhhhhhhhhhhhhhhhhhh
supply; rise
Answer:
()iiiiiiiiiiiiiiiiiiiiiiiiiii
When the interest rate on a bond is below the equilibrium interest rate, in
the bond market there is excess _____ and the interest rate will _____.
()jjjjjjjjjjjjjjjjjjjjjjjjjjj
demand; rise
()kkkkkkkkkkkkkkkkkkkkkkkkkkk
demand; fall
()lllllllllllllllllllllllllll
supply; fall
()mmmmmmmmmmmmmmmmmmmmmmmmmmm
supply; rise
Answer:
()nnnnnnnnnnnnnnnnnnnnnnnnnnn
When the interest rate on a bond is ______ the
equilibrium interest rate, in the bond market there is excess _____ and the interest rate will
_____.
()ooooooooooooooooooooooooooo
above; demand; rise
()ppppppppppppppppppppppppppp
above; demand; fall
()qqqqqqqqqqqqqqqqqqqqqqqqqqq
below; supply; fall
()rrrrrrrrrrrrrrrrrrrrrrrrrrr above; supply; rise
Answer:
()sssssssssssssssssssssssssss
When the interest rate on a bond is _____ the equilibrium interest
rate, in the bond market there is excess _____ and the interest rate will _____.
()ttttttttttttttttttttttttttt
below; demand; rise
()uuuuuuuuuuuuuuuuuuuuuuuuuuu
below; demand; fall
()vvvvvvvvvvvvvvvvvvvvvvvvvvv
below; supply; fall
()wwwwwwwwwwwwwwwwwwwwwwwwwww above; supply; rise
()xxxxxxxxxxxxxxxxxxxxxxxxxxx
below; supply; rise
Answer:
()yyyyyyyyyyyyyyyyyyyyyyyyyyy
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 _____.
()zzzzzzzzzzzzzzzzzzzzzzzzzzz fewer; fall
()aaaaaaaaaaaaaaaaaaaaaaaaaaaa fewer; rise
()bbbbbbbbbbbbbbbbbbbbbbbbbbbb
more; fall
()cccccccccccccccccccccccccccc more; rise
Answer:
()dddddddddddddddddddddddddddd
If the price of bonds is set _____ the equilibrium price,
the quantity of bonds demanded exceeds the quantity of bonds supplied, a condition called
excess _____.
()eeeeeeeeeeeeeeeeeeeeeeeeeeee above; demand
()ffffffffffffffffffffffffffff above; supply
()gggggggggggggggggggggggggggg
below; demand
()hhhhhhhhhhhhhhhhhhhhhhhhhhhh
below; supply
Answer:
()iiiiiiiiiiiiiiiiiiiiiiiiiiii
If the price of bonds is _____ the equilibrium price, the quantity of bonds
supplied exceeds the quantity of bonds demanded, a condition called excess _____.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjj
above; demand
()kkkkkkkkkkkkkkkkkkkkkkkkkkkk
above; supply
()llllllllllllllllllllllllllll
below; demand
()mmmmmmmmmmmmmmmmmmmmmmmmmmmm below; supply
Answer:
()nnnnnnnnnnnnnnnnnnnnnnnnnnnn
When the interest rate changes,
()oooooooooooooooooooooooooooo
the demand curve for bonds shifts to the right.
()pppppppppppppppppppppppppppp
the demand curve for bonds shifts to the left.
()qqqqqqqqqqqqqqqqqqqqqqqqqqqq
the supply curve for bonds shifts to the right.
()rrrrrrrrrrrrrrrrrrrrrrrrrrrr the supply curve for bonds shifts to the left.
()ssssssssssssssssssssssssssss
none of the above occurs.
Answer:
()tttttttttttttttttttttttttttt
When the interest rate changes,
()uuuuuuuuuuuuuuuuuuuuuuuuuuuu
the demand curve for bonds shifts to the right.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvv
the demand curve for bonds shifts to the left.
()wwwwwwwwwwwwwwwwwwwwwwwwwwww
the supply curve for bonds shifts to the
right.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxx
it is because either the demand or the supply curve has
shifted.
Answer:
()yyyyyyyyyyyyyyyyyyyyyyyyyyyy
When the interest rate rises, either the demand for bonds
______ or the supply of bonds _____.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzz increases; increases
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaa increases; decreases
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbb
()ccccccccccccccccccccccccccccc decreases; increases
Answer:
()ddddddddddddddddddddddddddddd
When the interest rate falls, either the demand for bonds
______ or the supply of bonds _____.
()eeeeeeeeeeeeeeeeeeeeeeeeeeeee increases; increases
()fffffffffffffffffffffffffffff increases; decreases
()ggggggggggggggggggggggggggggg
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhh
Answer:
()iiiiiiiiiiiiiiiiiiiiiiiiiiiii
A decrease in the brokerage commissions in the housing market from 6 to
5% of the sales price will shift the ________ curve for bonds to the _________.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjj
demand; right
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkk
demand; left
()lllllllllllllllllllllllllllll
supply; right
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmm supply; left
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnn
does not affect the demand or supply of bonds
Answer:
()ooooooooooooooooooooooooooooo
When people revise upward their expectations of future
interest rates, the _____ curve for bonds shifts to the _____.
()ppppppppppppppppppppppppppppp
demand; right
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqq
demand; left
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrr supply; left
()sssssssssssssssssssssssssssss
supply; right
Answer:
()ttttttttttttttttttttttttttttt
When people expect interest rates to rise in the future, the _____ curve for
bonds shifts to the _____.
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuu
demand; right
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvv
demand; left
()wwwwwwwwwwwwwwwwwwwwwwwwwwwww
supply; left
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
supply; right
Answer:
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyy
When people expect interest rates to fall in the future, the
_____ curve for bonds shifts to the _____.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzz demand; right
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
demand; left
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbb supply; left
()cccccccccccccccccccccccccccccc
supply; right
Answer:
()dddddddddddddddddddddddddddddd If people expect real estate prices to increase
significantly, the _____ curve for bonds will shift to the _____.
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeee
demand; right
()ffffffffffffffffffffffffffffff demand; left
()gggggggggggggggggggggggggggggg supply; left
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhh supply; right
Answer:
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiii
If people expect real estate prices to decrease significantly, the _____
curve for bonds will shift to the _____.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
demand; right
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkk demand; left
()llllllllllllllllllllllllllllll
supply; left
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
supply; right
Answer:
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnn When stock prices become more volatile, the ______
curve for bonds shifts to the _____.
()oooooooooooooooooooooooooooooo demand; right
()pppppppppppppppppppppppppppppp demand; left
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqq supply; left
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
supply; right
Answer:
()ssssssssssssssssssssssssssssss
When stock prices become less volatile, the ______ curve for
bonds shifts to the _____.
()tttttttttttttttttttttttttttttt
demand; right
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuu demand; left
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvv supply; left
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwww supply; right
Answer:
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
interest rate rises.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
interest rate falls.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
()ccccccccccccccccccccccccccccccc
When prices in the art market become more uncertain,

the demand curve for bonds shifts to the left and the
the demand curve for bonds shifts to the right and the
the supply curve for bonds shifts to the right and the
Answer:
()ddddddddddddddddddddddddddddddd When prices in the art market become more uncertain,
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
()fffffffffffffffffffffffffffffff the demand curve for bonds shifts to the left and the interest rate falls.
()ggggggggggggggggggggggggggggggg the demand curve for bonds shifts to the right and the
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh the supply curve for bonds shifts to the right and the
Answer:
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiii When prices in the art market become less uncertain,
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj the demand curve for bonds shifts to the left and the interest rate falls.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk the demand curve for bonds shifts to the right and the
()lllllllllllllllllllllllllllllll the supply curve for bonds shifts to the right and the interest rate falls.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
Answer:
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn When prices in the art market become less uncertain,

()ooooooooooooooooooooooooooooooo the demand curve for bonds shifts to the left and the
()ppppppppppppppppppppppppppppppp the demand curve for bonds shifts to the left and the
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq the demand curve for bonds shifts to the right and the
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
the supply curve for bonds shifts to the right and the interest rate
falls.
Answer:
()sssssssssssssssssssssssssssssss When prices in the stock market become more uncertain, the
demand curve for bonds shifts to the _____ and the interest rate _____.
()ttttttttttttttttttttttttttttttt right; rises
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu right; falls
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv left; falls
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwww left; rises
Answer:
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx When prices in the stock market become less uncertain,
the demand curve for bonds shifts to the _____ and the interest rate _____.
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy right; rises
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
right; falls
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
left; falls
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb left; rises
Answer:
()cccccccccccccccccccccccccccccccc
When the federal governments budget deficit increases,
the _____ curve for bonds shifts to the _____.
()dddddddddddddddddddddddddddddddd demand; right
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
demand; left
()ffffffffffffffffffffffffffffffff
supply; left
()gggggggggggggggggggggggggggggggg supply; right
Answer:
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh When the federal governments budget deficit decreases,
the _____ curve for bonds shifts to the _____.
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii demand; right
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj demand; left
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk supply; left
()llllllllllllllllllllllllllllllll supply; right
Answer:
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm When the expected inflation rate

increases, the demand for bonds _____, the supply of bonds _____, and the interest rate ______.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn increases; increases; rises
()oooooooooooooooooooooooooooooooo decreases; decreases; falls
()pppppppppppppppppppppppppppppppp increases; decreases; falls
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq decreases; increases; rises
Answer:
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
When the expected inflation rate decreases, the demand for bonds
_____, the supply of bonds _____, and the interest rate ______.
()ssssssssssssssssssssssssssssssss increases; increases; rises
()tttttttttttttttttttttttttttttttt decreases; decreases; falls
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu increases; decreases; falls
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv decreases; increases; rises
Answer:
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
When a recession occurs,
normally the demand for bonds _____ and the supply of bonds _____.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx increases; increases
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy increases; decreases
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
Answer:
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
When an economy grows out of a recession,
normally the demand for bonds _____ and the supply of bonds _____.
()ccccccccccccccccccccccccccccccccc
()ddddddddddddddddddddddddddddddddd
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
()fffffffffffffffffffffffffffffffff
Answer:
()ggggggggggggggggggggggggggggggggg
When the economy slips into a recession,
normally the demand for bonds _____, the supply of bonds _____, and the interest rate _____.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
increases; increases; rises
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii decreases; decreases; falls
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj increases; decreases; falls
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
decreases; increases; rises
Answer:
()lllllllllllllllllllllllllllllllll When the economy enters into a boom, normally the demand for bonds
_____, the supply of bonds _____, and the interest rate _____.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm increases; increases; rises
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
decreases; decreases; falls
()ooooooooooooooooooooooooooooooooo
increases; decreases; rises
()ppppppppppppppppppppppppppppppppp
decreases; increases; rises
Answer:
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
In a recession, bond demand shifts to the
________, bond supply shifts to the _______, and the interest rate _____.
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
right; right; rises
()sssssssssssssssssssssssssssssssss right; left; falls
()ttttttttttttttttttttttttttttttttt left; left; falls
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
left; right; rises
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
left; right; falls
Answer:
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
In the 1990s Japan had the
lowest interest rates in the world due to a combination of
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
inflation and recession.
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
deflation and expansion.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
inflation and expansion.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa deflation and recession.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
disinflation and expansion.
Answer:
()cccccccccccccccccccccccccccccccccc Deflation causes the demand for bonds to ________, the
supply of bonds to ______, and interest rates to_______.
()dddddddddddddddddddddddddddddddddd
increase; increase; increase
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee increase; decrease; decrease
()ffffffffffffffffffffffffffffffffff
decrease; increase; increase
()gggggggggggggggggggggggggggggggggg
decrease; decrease; increase
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
decrease; decrease; decrease
Answer:
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii Deflation causes the demand for bonds to ________, the supply of bonds
to ______, and bond prices to_______.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj increase; increase; increase
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
increase; decrease; increase
()llllllllllllllllllllllllllllllllll decrease; increase; increase
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
decrease; decrease;
increase
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
decrease; decrease; decrease
Answer:
()oooooooooooooooooooooooooooooooooo
Deflation causes the _____ bonds to increase, the
_____ bonds to decrease, and _____ to decrease.
()pppppppppppppppppppppppppppppppppp
supply of; demand for; bond prices
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
supply of; demand for; interest rates
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
demand for; supply of; bond prices
()ssssssssssssssssssssssssssssssssss
demand for; supply of; interest rates
()tttttttttttttttttttttttttttttttttt demand for; supply of; exchange rates
Answer:
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
Deflation causes the _____ bonds to increase, the
_____ bonds to decrease, and _____ to increase.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
supply of; demand for; bond prices
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
supply of; demand for; interest
rates
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
demand for; supply of; bond prices
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
demand for; supply of; interest rates
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz demand for; supply of; exchange rates
Answer:
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa A low savings rate causes the _________ bonds to fall,
and ______ to increase.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
demand for; interest rates
()ccccccccccccccccccccccccccccccccccc supply of; interest rates
()ddddddddddddddddddddddddddddddddddd
demand for; bond prices
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee supply of; bond prices
()fffffffffffffffffffffffffffffffffff
supply of; exchange rates
Answer:
()ggggggggggggggggggggggggggggggggggg
A low savings rate causes the _________ bonds
to fall, and ______ to decrease.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
demand for; interest rates
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii supply of; interest rates
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj demand for; bond prices
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
supply of; bond prices
()lllllllllllllllllllllllllllllllllll supply of; exchange rates
Answer:
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
______ interest rates, and ________ investment in capital goods
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
decrease; decrease
()ooooooooooooooooooooooooooooooooooo
increase; decrease
()ppppppppppppppppppppppppppppppppppp
decrease; increase
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
increase; increase
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
decrease; not affect
A low savings rate will
Answer:
Figure 5-1
()sssssssssssssssssssssssssssssssssss
In Figure 5-1, the most likely cause of the increase in the
equilibrium interest rate from i1 to i2 is
()ttttttttttttttttttttttttttttttttttt an increase in the price of bonds.
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
a decline in the price of bonds.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
an increase in the expected inflation rate.
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww a decrease in the expected
inflation rate.
Answer:
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
In Figure 5-1, the most likely cause of the
increase in the equilibrium interest rate from i1 to i2 is
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz a decrease in the expected inflation rate.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa a sharp decline in the growth rate of the money supply.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
a combination of both (a) and (c) above.
Answer:
()cccccccccccccccccccccccccccccccccccc In Figure 5-1, the most likely cause of the increase in the
equilibrium interest rate from i1 to i2 is
()dddddddddddddddddddddddddddddddddddd
an expected decrease in the government budget
deficit.
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee an expected increase in the government budget deficit.
()ffffffffffffffffffffffffffffffffffff
a sharp decline in the growth rate of the money supply.
()gggggggggggggggggggggggggggggggggggg
a combination of both (a) and (c) of the above.
Answer:
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
In Figure 5-1, an increase in the expected
inflation rate causes the
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
interest rate to increase from i1 to i2.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
interest rate to decrease from i2 to i1.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
demand curve for bonds to shift to the left.
()llllllllllllllllllllllllllllllllllll
both (a) and (c) of the above.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
both (b) and (c) of the
above.
Answer:
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
In Figure 5-1, an increase in the expected
inflation rate causes the
()oooooooooooooooooooooooooooooooooooo
interest rate to increase from i1 to i2.
()pppppppppppppppppppppppppppppppppppp
interest rate to decrease from i2 to i1.
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
demand curve for bonds to shift to the right.
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr both (a) and (c) of the above.
()ssssssssssssssssssssssssssssssssssss
both (b) and (c) of the above.
Answer:
()tttttttttttttttttttttttttttttttttttt
In Figure 5-1, one factor that would not have caused the supply of
bonds to increase (shift to the right) is
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
an increase in government budget deficits.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww a recession.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
a business cycle expansion.
Answer:
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
In Figure 5-1, one factor that would not have
caused the supply of bonds to increase (shift to the right) is
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz a decrease in government budget deficits.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa an increase in expected inflation.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb expectations of more profitable investment
opportunities.
()ccccccccccccccccccccccccccccccccccccc a business cycle expansion.
Answer:
()ddddddddddddddddddddddddddddddddddddd In Figure 5-1, one factor that would not have

caused the demand for bonds to decrease (shift to the left) is
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee an increase in the expected return on bonds relative to
other assets.
()fffffffffffffffffffffffffffffffffffff
a decrease in the expected return on bonds relative to other assets.
()ggggggggggggggggggggggggggggggggggggg a decrease in wealth.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh an increase in the riskiness of bonds relative to
other assets.
Answer:
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
In Figure 5-1, one factor that would not have caused the demand
for bonds to decrease (shift to the left) is
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
a decrease in the expected return on bonds relative to other assets.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk an increase in wealth.
()lllllllllllllllllllllllllllllllllllll
a decrease in wealth.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm an increase in the
riskiness of bonds relative to other assets.
Answer:
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn In Figure 5-1, factors that would not have caused
the demand for bonds to decrease (shift to the left) include:
()ooooooooooooooooooooooooooooooooooooo an increase in the expected return on bonds
relative to other assets.
()ppppppppppppppppppppppppppppppppppppp a reduction in the riskiness of bonds relative to
other assets.
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq a decrease in wealth.
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr all of the above.
()sssssssssssssssssssssssssssssssssssss
Answer:
()ttttttttttttttttttttttttttttttttttttt
In Figure 5-1, factors that could cause the supply of bonds to
increase (shift to the right) include:
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu an increase in government budget deficits.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv an increase in expected inflation.
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
expectations of more
profitable investment opportunities.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx all of the above.
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy only (b) and (c) of the above.
Answer:
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz In Figure 5-1, factors that could cause the supply of

bonds to shift to the right include:
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
a decrease in government budget deficits.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb a decrease in expected inflation.
()cccccccccccccccccccccccccccccccccccccc
a recession.
()dddddddddddddddddddddddddddddddddddddd a business cycle expansion.
Answer:
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
In Figure 5-1, factors that could cause the supply
of bonds to increase (shift to the right) include:
()ffffffffffffffffffffffffffffffffffffff an increase in government budget deficits.
()gggggggggggggggggggggggggggggggggggggg a decrease in expected inflation.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh expectations of more profitable investment
opportunities.
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
all of the above.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
only (a) and (c) of the above.
Answer:
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk In Figure 5-1, factors that could cause the supply
of bonds to shift to the right include:
()llllllllllllllllllllllllllllllllllllll
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmman increase in expected
inflation.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn a recession.
()oooooooooooooooooooooooooooooooooooooo expectations of fewer profitable investment
opportunities.
Answer:
()pppppppppppppppppppppppppppppppppppppp In Figure 5-1, one factor that would not have
caused the demand for bonds to shift to the left is
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq a reduction in the riskiness of bonds relative to
other assets.
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr an increase in the expected return on bonds relative to other
assets.
()ssssssssssssssssssssssssssssssssssssss
a decrease in the expected rate of inflation.
()tttttttttttttttttttttttttttttttttttttt
expectations of higher interest rates in the future.
Answer:
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu In Figure 5-1, one factor that would not have

caused the demand for bonds to shift to the left is
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv an increase in the riskiness of bonds relative to
other assets.
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
a decrease in the
expected return on bonds relative to other assets.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx an increase in the expected rate of inflation.
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy expectations of lower interest rates in the future.
Answer:
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
In Figure 5-1, factors that could cause the
demand for bonds to decrease (shift to the left) include:
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
an increase in the expected return on bonds
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb a decrease in the expected return on bonds
()ccccccccccccccccccccccccccccccccccccccc
an increase in wealth.
()ddddddddddddddddddddddddddddddddddddddd a reduction in the riskiness of bonds relative to
other assets.
Answer:
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
()fffffffffffffffffffffffffffffffffffffff an increase in the riskiness of bonds relative to other assets.
()ggggggggggggggggggggggggggggggggggggggg a decrease in the expected return on bonds
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh an increase in wealth.
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
all of the above.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
Answer:
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk In Figure 5-1, factors that could cause the
()lllllllllllllllllllllllllllllllllllllll
an increase in the riskiness of bonds relative to other assets.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
an increase in
the expected rate of inflation.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn expectations of higher interest rates in the future.
()ooooooooooooooooooooooooooooooooooooooo all of the above.
()ppppppppppppppppppppppppppppppppppppppp only (a) and (b) of the above.
Answer:
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq In Figure 5-1, factors that could cause the

()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr a decrease in the riskiness of bonds relative to other assets.
()sssssssssssssssssssssssssssssssssssssss a decrease in the expected rate of inflation.
()ttttttttttttttttttttttttttttttttttttttt
expectations of higher interest rates in the future.
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu all of the above.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv only (a) and (b) of the above.
Answer:
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww In Figure 5-1, factors
that could cause the demand for bonds to shift to the left include:
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx expectations of lower interest rates in the future.
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy an increase in the expected return on bonds
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
a decrease in wealth.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
a reduction in the riskiness of bonds relative to
other assets.
Answer:
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
In Figure 5-1, the price of bonds would
fall from P1 to P2 and the interest rate would rise from i1 to i2 if
()cccccccccccccccccccccccccccccccccccccccc
inflation is expected to increase in the future.
()dddddddddddddddddddddddddddddddddddddddd
interest rates are expected to fall in the
future.
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
the expected return on bonds relative to other
assets is expected to increase in the future.
()ffffffffffffffffffffffffffffffffffffffff the riskiness of bonds falls relative to other assets.
Answer:
()gggggggggggggggggggggggggggggggggggggggg
In Figure 5-1, shifts of both supply and
demand would increase the price of bonds from P2 to P1 and the interest rate would fall from i2
to i1 if
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
interest rates are expected to fall in the
future.
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
the expected return on bonds relative to other assets is expected to
increase in the future.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
inflation is expected to decline in the future.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
the riskiness of bonds falls relative to
other assets.
Answer:
()llllllllllllllllllllllllllllllllllllllll
In Figure 5-1, the increase in the interest rate from i 1 to i2 due to
an increase in the expected inflation rate is called the
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
Fisher effect.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
liquidity effect.
()oooooooooooooooooooooooooooooooooooooooo
income effect.
()pppppppppppppppppppppppppppppppppppppppp
Keynes effect.
Answer:
Figure 5-2
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
In Figure 5-2, one possible explanation
for the increase in the interest rate from i1 to i2 is
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
()ssssssssssssssssssssssssssssssssssssssss a decrease in the expected inflation rate.
()tttttttttttttttttttttttttttttttttttttttt
an increase in economic growth.
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
a decrease in economic growth.
Answer:
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
In Figure 5-2, one factor that would not
have caused the supply of bonds to shift to the right is
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww an increase in
government budget deficits.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
a recession.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
Answer:
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
In Figure 5-2, one factor that would not have caused
the demand for bonds to increase (shift to
the right) is
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
an increase in the expected return on
bonds relative to other assets.
()ccccccccccccccccccccccccccccccccccccccccc
a decrease in the expected return on bonds
()ddddddddddddddddddddddddddddddddddddddddd
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
a reduction in the riskiness of bonds relative to
other assets.
Answer:
()fffffffffffffffffffffffffffffffffffffffff In Figure 5-2, one factor that would not have caused the supply of
bonds to shift to the right is
()ggggggggggggggggggggggggggggggggggggggggg
an increase in government budget
deficits.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
an increase in expected profitable investment opportunities.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
a business cycle contraction.
Answer:
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
have caused the supply of bonds to increase is
()lllllllllllllllllllllllllllllllllllllllll
an increase in government budget deficits.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm a decrease in
expected inflation.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
expectations of more profitable
investment opportunities.
()ooooooooooooooooooooooooooooooooooooooooo
Answer:
()ppppppppppppppppppppppppppppppppppppppppp
supply of bonds to increase (shift to the right) include:
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
()sssssssssssssssssssssssssssssssssssssssss expectations of more profitable investment opportunities.
()ttttttttttttttttttttttttttttttttttttttttt
all of the above.
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
only (b) and (c) of the above.
Answer:
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
have caused the demand for bonds to increase (shift to the right) is
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
a decrease in the
expected return on bonds relative to other assets.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
a reduction in the riskiness of bonds
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
a decrease in the expected rate of
inflation.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
expectations of lower interest rates in the future.
Answer:
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa In Figure 5-2, one factor that would not have
caused the demand for bonds to shift to the right is
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
a reduction in the riskiness of bonds
()cccccccccccccccccccccccccccccccccccccccccc an increase in the expected return on bonds
()dddddddddddddddddddddddddddddddddddddddddd
inflation.
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee expectations of higher interest rates in the future.
Answer:
()ffffffffffffffffffffffffffffffffffffffffff
In Figure 5-2, factors that could cause the demand for
bonds to increase include:
()gggggggggggggggggggggggggggggggggggggggggg
an increase in the expected return on
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
a decrease in the expected return on
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
a reduction in the riskiness of bonds relative to other assets.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
both (a) and (b) of the above.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
both (a) and (c) of the above.
Answer:
()llllllllllllllllllllllllllllllllllllllllll
In Figure 5-2, factors that could cause the demand for bonds to
increase include:
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm an increase in
the riskiness of bonds relative to other assets.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
a decrease in the expected return on
()oooooooooooooooooooooooooooooooooooooooooo
()pppppppppppppppppppppppppppppppppppppppppp
all of the above.
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
Answer:
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
In Figure 5-2, factors that could cause the demand for
bonds to shift to the right include:
()ssssssssssssssssssssssssssssssssssssssssss an increase in the riskiness of bonds relative to other
assets.
()tttttttttttttttttttttttttttttttttttttttttt
an increase in the expected rate of inflation.
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
expectations of lower interest rates in the
future.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
all of the above.
Answer:
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
In Figure 5-2,
factors that could cause the demand for bonds to shift to the right include:
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
a decrease in the riskiness of bonds
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
inflation.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz expectations of higher interest rates in the future.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa all of the above.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
Answer:
()ccccccccccccccccccccccccccccccccccccccccccc In Figure 5-2, factors that could cause the
demand for bonds to shift to the right include:
()ddddddddddddddddddddddddddddddddddddddddddd
expectations of lower interest rates in the
future.
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee an increase in the expected return on bonds
()fffffffffffffffffffffffffffffffffffffffffff
a reduction in the riskiness of bonds relative to other
assets.
()ggggggggggggggggggggggggggggggggggggggggggg
all of the above.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
Answer:
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii When comparing the Loanable Funds and Liquidity Preference
Frameworks of interest rate determination, which of the following are true?
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj The loanable funds framework is easier to use when analyzing the
effects from changes in expected inflation.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
The liquidity preference framework
provides a simpler analysis of the effects from changes in income, the price level, and the supply
of money.
()lllllllllllllllllllllllllllllllllllllllllll In most instances, the two approaches to interest rate
determination yield the same predictions.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
All of
the above are true.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
Only (a) and (b) of the above are true.
Answer:
()ooooooooooooooooooooooooooooooooooooooooooo
When comparing the Loanable Funds
and Liquidity Preference Frameworks of interest rate determination, which of the following are
true?
()ppppppppppppppppppppppppppppppppppppppppppp
The liquidity preference framework is
easier to use when analyzing the effects from changes in expected inflation.
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
The loanable funds framework provides
a simpler analysis of the effects from changes in income, the price level, and the supply of
money.
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
In most instances, the two approaches to interest rate
determination yield the same predictions.
()sssssssssssssssssssssssssssssssssssssssssss
All of the above are true.
()ttttttttttttttttttttttttttttttttttttttttttt Only (a) and (b) of the above are true.
Answer:
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
In his Liquidity Preference Framework,
Keynes assumed that money has a zero rate of return; thus,
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
when interest rates rise, the expected
return on money falls relative to the expected return on bonds, causing the demand for money to
fall.
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
when interest
rates rise, the expected return on money falls relative to the expected return on bonds, causing
the demand for money to rise.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
when interest rates fall, the expected
fall.
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
when interest rates fall, the expected
rise.
Answer:
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz The loanable funds 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 _____.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa expected inflation; bonds
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb expected inflation; money
()cccccccccccccccccccccccccccccccccccccccccccc government budget deficits; bonds
()dddddddddddddddddddddddddddddddddddddddddddd government budget deficits; money
Answer:
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee In Keyness liquidity preference framework,

individuals are assumed to hold their wealth in two forms:
()ffffffffffffffffffffffffffffffffffffffffffff
real assets and financial assets.
()gggggggggggggggggggggggggggggggggggggggggggg stocks and bonds.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh money and bonds.
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii money and gold.
Answer:
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj In Keyness liquidity preference framework, as the expected
return on bonds increases (holding everything else unchanged), the expected return on money
_____, causing the demand for _____ to fall.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk falls; bonds
()llllllllllllllllllllllllllllllllllllllllllll falls; money
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
rises;
bonds
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn rises; money
Answer:
()oooooooooooooooooooooooooooooooooooooooooooo In Keyness liquidity preference
framework,
()pppppppppppppppppppppppppppppppppppppppppppp the demand for bonds must equal the
supply of money.
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq the demand for money must equal the
supply of bonds.
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
an excess supply of bonds implies an excess supply of
money.
()ssssssssssssssssssssssssssssssssssssssssssss
all of the above.
()tttttttttttttttttttttttttttttttttttttttttttt none of the above.
Answer:
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu In Keyness liquidity preference
framework,
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv the demand for bonds must equal the
supply of money.
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww the demand for
money must equal the supply of bonds.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx an excess demand of bonds implies an
excess demand for money.
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy an excess supply of bonds implies an
excess demand for money.
Answer:
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz If there is excess demand for money, there is

()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
excess demand for bonds.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb equilibrium in the bond market.
()ccccccccccccccccccccccccccccccccccccccccccccc
excess supply of bonds.
()ddddddddddddddddddddddddddddddddddddddddddddd too much money.
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
too few bonds.
Answer:
()fffffffffffffffffffffffffffffffffffffffffffff
An excess demand for bonds implies
()ggggggggggggggggggggggggggggggggggggggggggggg excess demand for money.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh equilibrium in the money market.
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii a shortage of currency.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj a surplus of bonds.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk excess supply of money.
Answer:
()lllllllllllllllllllllllllllllllllllllllllllll The opportunity cost of holding money is
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
of income.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn the price level.
()ooooooooooooooooooooooooooooooooooooooooooooo the interest rate.
()ppppppppppppppppppppppppppppppppppppppppppppp all of the above.
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq only (a) and (b) of the above.
the level
Answer:
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
An increase in the interest rate
()sssssssssssssssssssssssssssssssssssssssssssss
increases the demand for money.
()ttttttttttttttttttttttttttttttttttttttttttttt increases the quantity of money demanded.
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu decreases the demand for money.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv decreases the quantity of money
demanded.
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww has no effect on
the quantity of money demanded.
Answer:
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx A decrease in the interest rate

()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy increases the demand for money.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
increases the quantity of money
demanded.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
decreases the demand for money.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbdecreases the quantity of money
demanded.
()cccccccccccccccccccccccccccccccccccccccccccccc
has no effect on the quantity of money
demanded.
Answer:
()ddddddddddddddddddddddddddddddddddddddddddddddIf there is an excess supply of money
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
individuals sell bonds, causing the
interest rate to rise.
()ffffffffffffffffffffffffffffffffffffffffffffff
individuals sell bonds, causing the interest rate to fall.
()ggggggggggggggggggggggggggggggggggggggggggggggindividuals buy bonds, causing interest
rates to fall.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhindividuals buy bonds, causing interest
rates to rise.
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii individuals buy bonds, causing bond prices to fall.
Answer:
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj If there is an excess demand for money
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkindividuals sell bonds, causing the
interest rate to rise.
()llllllllllllllllllllllllllllllllllllllllllllll individuals sell bonds, causing the interest rate to fall.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm individu
als buy bonds, causing interest rates to fall.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnindividuals buy bonds, causing interest
rates to rise.
()ooooooooooooooooooooooooooooooooooooooooooooooindividuals buy bonds, causing bond
prices to fall.
Answer:
()ppppppppppppppppppppppppppppppppppppppppppppppA higher level of income causes the
demand for money to _____ and the demand curve for money to shift to the _____.
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqdecrease; right
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr decrease; left
()ssssssssssssssssssssssssssssssssssssssssssssss
increase; right
()tttttttttttttttttttttttttttttttttttttttttttttt increase; left
Answer:
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuA lower level of income causes the

demand for money to _____ and the demand curve for money to shift to the _____.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvdecrease; right
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
decrease
; left
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxincrease; right
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
increase; left
Answer:
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
A higher level of income causes the
demand for money to _____ and the interest rate to _____.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
decrease; decrease
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
decrease; increase
()ccccccccccccccccccccccccccccccccccccccccccccccc
increase; decrease
()ddddddddddddddddddddddddddddddddddddddddddddddd
increase; increase
Answer:
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
A lower level of income causes the
demand for money to _____ and the interest rate to _____.
()fffffffffffffffffffffffffffffffffffffffffffffff
decrease; decrease
()ggggggggggggggggggggggggggggggggggggggggggggggg
decrease; increase
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
increase; decrease
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii increase; increase
Answer:
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj When real income falls, the demand curve for money shifts to the
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
right; rises
()lllllllllllllllllllllllllllllllllllllllllllllll right; fall
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
l
eft; falls
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
left; rises
Answer:
()ooooooooooooooooooooooooooooooooooooooooooooooo When real income increases, the demand
curve for money shifts to the _____ and the interest rate _____.
()ppppppppppppppppppppppppppppppppppppppppppppppp
right; rises
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
right; fall
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr left; falls
()sssssssssssssssssssssssssssssssssssssssssssssss left; rises
Answer:
()ttttttttttttttttttttttttttttttttttttttttttttttt When real income _____, the demand curve for money shifts to
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
falls; left; falls
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
falls; right; falls
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
falls;
left; rises
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
rises; left; rises
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
rises; right; falls
Answer:
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
When real income _____, the demand
curve for money shifts to the _____ and the interest rate _____.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
falls; right; rises
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
falls; right; falls
()cccccccccccccccccccccccccccccccccccccccccccccccc
falls; left; rises
()dddddddddddddddddddddddddddddddddddddddddddddddd
rises; left; rises
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
rises; right; rises
Answer:
()ffffffffffffffffffffffffffffffffffffffffffffffff In the Keynesian liquidity preference framework, a
higher level of income causes the demand for money to _____ and the demand curve to shift to
the _____.
()gggggggggggggggggggggggggggggggggggggggggggggggg
increase; left
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
increase; right
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
decrease; left
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
decrease; right
Answer:
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
In the Keynesian liquidity
preference framework, a lower level of income causes the demand for money to _____ and the
demand curve to shift to the _____.
()llllllllllllllllllllllllllllllllllllllllllllllll
increase; left
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
i
ncrease; right
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
decrease; left
()oooooooooooooooooooooooooooooooooooooooooooooooo
decrease; right
Answer:
()pppppppppppppppppppppppppppppppppppppppppppppppp
preference framework, when income is _____ during a business cycle expansion, interest rates
will _____.
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
rising; rise
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr rising; fall
()ssssssssssssssssssssssssssssssssssssssssssssssss falling; rise
()tttttttttttttttttttttttttttttttttttttttttttttttt
falling; fall
Answer:
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
preference model, a business cycle _________ causes income to ________ and interest rates to
________.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
expansion; decrease; decrease
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww expansio
n; increase; decrease
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
contraction; increase; increase
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
contraction; decrease; decrease
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
contraction; decrease; increase
Answer:
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa In the Keynesian liquidity preference
framework, a rise in the price level causes the demand for money to _____ and the demand
curve to shift to the _____.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
increase; left
()ccccccccccccccccccccccccccccccccccccccccccccccccc increase; right
()ddddddddddddddddddddddddddddddddddddddddddddddddd
decrease; left
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee decrease; right
Answer:
()fffffffffffffffffffffffffffffffffffffffffffffffff In the Keynesian liquidity preference framework, a
decline in the price level causes the demand for money to _____ and the demand curve to shift
to the _____.
()ggggggggggggggggggggggggggggggggggggggggggggggggg
increase; left
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
increase; right
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
decrease; left
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
decrease; right
Answer:
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
When the price level _____, the
demand curve for money shifts to the _____ and the interest rate _____.
()lllllllllllllllllllllllllllllllllllllllllllllllll
falls; left; falls
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm f
alls; right; falls
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
falls; left; rises
()ooooooooooooooooooooooooooooooooooooooooooooooooo
rises; right; rises
()ppppppppppppppppppppppppppppppppppppppppppppppppp
rises; right; falls
Answer:
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
When the price level _____, the
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr falls; left; rises
()sssssssssssssssssssssssssssssssssssssssssssssssss falls; right; falls
()ttttttttttttttttttttttttttttttttttttttttttttttttt
falls; left; falls
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
rises; right; rises
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
rises; right; falls
Answer:
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
When
the price level rises, the demand curve for money shifts to the _____ and the interest rate _____.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
right; rises
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
right; falls
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz left; falls
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa left; rises
Answer:
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
When the price level falls, the
()cccccccccccccccccccccccccccccccccccccccccccccccccc right; rises
()dddddddddddddddddddddddddddddddddddddddddddddddddd right; falls
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee left; falls
()ffffffffffffffffffffffffffffffffffffffffffffffffff left; rises
Answer:
()gggggggggggggggggggggggggggggggggggggggggggggggggg A rise in the price level causes
the demand for money to _____ and the interest rate to _____.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh decrease; decrease
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
decrease; increase
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
increase; decrease
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk increase; increase
Answer:
()llllllllllllllllllllllllllllllllllllllllllllllllll
A decline in the price level causes the demand for money
to _____ and the interest rate to _____.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm d
ecrease; decrease
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn decrease; increase
()oooooooooooooooooooooooooooooooooooooooooooooooooo increase; decrease
()pppppppppppppppppppppppppppppppppppppppppppppppppp increase; increase
Answer:
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq A rise in the price level causes
the demand for money to ____ and the demand curve to shift to
the ____.
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
decrease; right
()ssssssssssssssssssssssssssssssssssssssssssssssssss decrease; left
()tttttttttttttttttttttttttttttttttttttttttttttttttt
increase; right
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu increase; left
Answer:
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv A decline in the price level
causes the demand for money to ____ and the demand curve to shift to
the ____.
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwdecrease
; right
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx decrease; left
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy increase; right
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz increase; left
Answer:
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa A decline in the expected inflation rate
causes the demand for money to _____ and the demand curve to shift to the _____.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb decrease; right
()ccccccccccccccccccccccccccccccccccccccccccccccccccc decrease; left
()ddddddddddddddddddddddddddddddddddddddddddddddddddd increase; right
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee increase; left
Answer:
()fffffffffffffffffffffffffffffffffffffffffffffffffff In the liquidity preference framework, a one-time
increase in the money supply results in a price level effect. The maximum impact of the price
level effect on interest rates occurs
()ggggggggggggggggggggggggggggggggggggggggggggggggggg at the moment the price level hits
its peak (stops rising) because both the price level and expected inflation effects are at work.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh immediately after the price level
begins to rise, because both the price level and expected inflation effects are at work.
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
at the moment the expected inflation rate hits its peak.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
at the moment the inflation rate hits it peak.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk at the moment inflation begins to

increase.
Answer:
()lllllllllllllllllllllllllllllllllllllllllllllllllll
In the liquidity preference framework, a one-time
increase in the money supply has different price level and expected inflation effects. The
difference is
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
the increase in the interest rate caused by the rise in the price level remains once the price level has
stopped rising, but the increase in the interest rate caused by expected inflation will be reversed
once the price level stops rising.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn the increase in the interest rate
caused by the rise in the expected inflation rate remains once the price level has stopped rising,
but the increase in the interest rate caused by the rise in the price level will be reversed once the
price level stops rising.
()ooooooooooooooooooooooooooooooooooooooooooooooooooo once the price level stops rising,
the interest rate declines because of the price level effect, but the expected inflation effect
remains after the price level has stopped rising.
()ppppppppppppppppppppppppppppppppppppppppppppppppppp once the price level stops rising,
the interest rate continues to increase because of the expected inflation effect.
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq there is no difference, as both
effects cause the interest rate to rise.
Answer:
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Interest rates increased continuously during the
1970s. The most likely explanation is
()sssssssssssssssssssssssssssssssssssssssssssssssssss
banking failures that reduced the money
supply.
()ttttttttttttttttttttttttttttttttttttttttttttttttttt
a rise in the level of income.
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu the repeated bouts of recession
and expansion.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv increasing expected rates of
inflation.
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
a
n increase in the price level.
Answer:
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Holding everything else equal,
an increase in the money supply causes
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy interest rates to decline initially.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz interest rates to increase initially.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
bond prices to decline initially.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb both (a) and (c) of the above.
()cccccccccccccccccccccccccccccccccccccccccccccccccccc
Answer:
()dddddddddddddddddddddddddddddddddddddddddddddddddddd Holding everything else equal,

an increase in the money supply causes
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
interest rates to decline initially.
()ffffffffffffffffffffffffffffffffffffffffffffffffffffinterest rates to increase initially.
()gggggggggggggggggggggggggggggggggggggggggggggggggggg bond prices to increase initially.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh both (a) and (c) of the above.
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
Answer:
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
Holding everything else equal, a decrease in the money
supply causes
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk interest rates to decline initially.
()llllllllllllllllllllllllllllllllllllllllllllllllllll
interest rates to increase initially.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
bond prices to increase initially.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn both (a) and (c) of the above.
()oooooooooooooooooooooooooooooooooooooooooooooooooooo both (b) and (c) of the above.
Answer:
()pppppppppppppppppppppppppppppppppppppppppppppppppppp Holding everything else equal, a
decrease in the money supply causes
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq interest rates to decline initially.
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
interest rates to increase initially.
()ssssssssssssssssssssssssssssssssssssssssssssssssssss
bond prices to decrease initially.
()tttttttttttttttttttttttttttttttttttttttttttttttttttt
Answer:
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu When the Fed decreases the
money stock, the money supply curve shifts to the _____ and the interest rate _____.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv right; rises
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
ight; falls
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx left; falls
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy left; rises
Answer:
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
When the Fed increases the
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
right; rises
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
right; falls
()ccccccccccccccccccccccccccccccccccccccccccccccccccccc
left; falls
()ddddddddddddddddddddddddddddddddddddddddddddddddddddd
left; rises
Answer:
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
When the Fed ____ the money
stock, the money supply curve shifts to the ____ and the
interest rate ____
()fffffffffffffffffffffffffffffffffffffffffffffffffffff
decreases; right; rises
()ggggggggggggggggggggggggggggggggggggggggggggggggggggg
increases; right; rises
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
decreases; left; falls
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
increases; left; rises
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj
decreases; left; rises
Answer:
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
When the Fed increases
the money stock, the money supply curve shifts to the _____ and the interest rate _____.
()lllllllllllllllllllllllllllllllllllllllllllllllllllll
right; rises
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
right; falls
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
left; falls
()ooooooooooooooooooooooooooooooooooooooooooooooooooooo
left; rises
Answer:
()ppppppppppppppppppppppppppppppppppppppppppppppppppppp
When the Fed _____ the
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
decreases; right; rises
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
increases; right; falls
()sssssssssssssssssssssssssssssssssssssssssssssssssssss
decreases; left; falls
()ttttttttttttttttttttttttttttttttttttttttttttttttttttt
increases; left; rises
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
decreases; right; falls
Answer:
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv When the price level falls, the
________ curve for nominal money ________, and interest
rates _______.
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww d
emand; decreases; falls
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
demand; increases; rises
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
supply; increases; rises
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
supply; decreases; falls
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
supply; increases; falls
Answer:
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
When the interest rate is
above the equilibrium interest rate, there is an excess _____ for (of) money and the interest rate
will _____.
()cccccccccccccccccccccccccccccccccccccccccccccccccccccc
demand; rise
()dddddddddddddddddddddddddddddddddddddddddddddddddddddd
demand; fall
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
supply; fall
()ffffffffffffffffffffffffffffffffffffffffffffffffffffff
supply; rise
Answer:
()gggggggggggggggggggggggggggggggggggggggggggggggggggggg
In the market for money,
an interest rate below equilibrium results in an excess _____ for (of) money and the interest rate
will _____.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
demand; rise
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii demand; fall
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj supply; fall
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
supply; rise
()llllllllllllllllllllllllllllllllllllllllllllllllllllll cannot be determined
Answer:
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
A(n) ______ in the money supply creates excess ______ of (for) money, causing interest rates
to ______.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
increase; demand; rise
()oooooooooooooooooooooooooooooooooooooooooooooooooooooo
increase; supply; fall
()pppppppppppppppppppppppppppppppppppppppppppppppppppppp
increase; supply; rise
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
decrease; supply; fall
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
decrease; demand; fall
Answer:
()ssssssssssssssssssssssssssssssssssssssssssssssssssssss
A(n) ______ in the money supply creates
excess ______ of (for) money, causing interest rates
to ______.
()tttttttttttttttttttttttttttttttttttttttttttttttttttttt increase; demand; rise
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
increase; demand; fall
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
increase; supply; rise
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww d
ecrease; supply; fall
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
decrease; demand; rise
Answer:
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy A(n) ______ in the money supply

creates excess demand for _______, causing interest rates
to _______.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
increase; money; rise
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
increase; bonds; fall
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
decrease; bonds; rise
()ccccccccccccccccccccccccccccccccccccccccccccccccccccccc
decrease; bonds; fall
()ddddddddddddddddddddddddddddddddddddddddddddddddddddddd
decrease; money; fall
Answer:
Figure 5-3
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
In Figure 5-3, one factor not
responsible for the decline in the demand for money is
()fffffffffffffffffffffffffffffffffffffffffffffffffffffff
a decline the price level.
()ggggggggggggggggggggggggggggggggggggggggggggggggggggggg
a decline in income.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
an increase in income.
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii a decline in the expected inflation rate.
Answer:
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj In Figure 5-3, one factor not responsible for the decline in
the interest rate is
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
()lllllllllllllllllllllllllllllllllllllllllllllllllllllll a decline in income.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
a decline in the expected
inflation rate.
Answer:
()ooooooooooooooooooooooooooooooooooooooooooooooooooooooo
not responsible for the decline in the interest rate is
()ppppppppppppppppppppppppppppppppppppppppppppppppppppppp
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
supply.
In Figure 5-3, one factor

an increase in the money
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr a decline in income.

()sssssssssssssssssssssssssssssssssssssssssssssssssssssss
a decline in the expected inflation rate.
Answer:
()ttttttttttttttttttttttttttttttttttttttttttttttttttttttt In Figure 5-3, the increase in the interest rate from i 2 to i1
can be explained by
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
a decrease in money
growth.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
price level.
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
all of the above.
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
only (a) and (b) of the
above.
Answer:
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
In Figure 5-3, the increase in the
interest rate from i2 to i1 can be explained by
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
a decrease in money growth.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
an increase in the
expected price level.
()cccccccccccccccccccccccccccccccccccccccccccccccccccccccc
()dddddddddddddddddddddddddddddddddddddddddddddddddddddddd
both (a) and (c) of the
above.
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
Answer:
()ffffffffffffffffffffffffffffffffffffffffffffffffffffffff
In Figure 5-3, the decrease in the interest rate
from i1 to i2 can be explained by
()gggggggggggggggggggggggggggggggggggggggggggggggggggggggg
a decrease in income.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
an increase in the
expected price level.
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii a decrease in money growth.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj only (a) and (b) of the above.
Answer:
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
In Figure 5-3, the decline
in the interest rate from i1 to i2 can be explained by
()llllllllllllllllllllllllllllllllllllllllllllllllllllllll a decrease in income.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
a decrease in the expected price level.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
an increase in money
growth.
()oooooooooooooooooooooooooooooooooooooooooooooooooooooooo
both (a) and (b) of the
above.
()pppppppppppppppppppppppppppppppppppppppppppppppppppppppp
both (a) and (c) of the
above.
Answer:
Figure 5-4
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
In Figure 5-4, the factor
responsible for the decline in the interest rate is
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr a decline the price level.
()ssssssssssssssssssssssssssssssssssssssssssssssssssssssss a decline in income.
()tttttttttttttttttttttttttttttttttttttttttttttttttttttttt an increase in the money supply.
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
inflation rate.
Answer:
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
In Figure 5-4, the
decrease in the interest rate from i 1 to i2 can be explained by
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
a decrease in money growth.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
an increase in money
growth.
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
price level.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
Answer:
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa In Figure 5-4, the increase in the

interest rate from i2 to i1 can be explained by
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb a decrease in money
growth.
()ccccccccccccccccccccccccccccccccccccccccccccccccccccccccc an increase in the expected price
level.
()ddddddddddddddddddddddddddddddddddddddddddddddddddddddddd an increase in income.
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee both (a) and (c) of the above.
()fffffffffffffffffffffffffffffffffffffffffffffffffffffffff
Answer:
()ggggggggggggggggggggggggggggggggggggggggggggggggggggggggg
When the growth rate of
the money supply increases, interest rates end up being permanently higher if
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh the liquidity effect is
larger than the other effects.
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii there is fast adjustment of expected inflation.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj there is slow adjustment of expected inflation.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk the expected inflation
effect is larger than the liquidity effect.
Answer:
()lllllllllllllllllllllllllllllllllllllllllllllllllllllllll When the growth rate of the money supply increases,
interest rates end up being permanently lower if
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
the liquidity effect is larger than the other effects.
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn there is fast adjustment
of expected inflation.
()ooooooooooooooooooooooooooooooooooooooooooooooooooooooooo there is slow adjustment
()ppppppppppppppppppppppppppppppppppppppppppppppppppppppppp the expected inflation
Answer:
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
the money supply decreases, interest rates end up being permanently lower if
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr the liquidity effect is larger than the other effects.
()sssssssssssssssssssssssssssssssssssssssssssssssssssssssss there is fast adjustment of expected
inflation.
()ttttttttttttttttttttttttttttttttttttttttttttttttttttttttt there is slow adjustment of expected inflation.
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu the expected inflation
Answer:
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
the money supply decreases, interest rates end up being permanently higher if
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
the liquidity effect is larger than the other effects.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx there is fast adjustment
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy there is slow adjustment
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz the expected inflation effect is
larger than the liquidity effect.
Answer:
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa When the growth rate of the
money supply is decreased, interest rates will fall immediately if the liquidity effect is _____
than the other money supply effects and there is _____ adjustment of expected inflation.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb larger; fast
()cccccccccccccccccccccccccccccccccccccccccccccccccccccccccc larger; slow
()dddddddddddddddddddddddddddddddddddddddddddddddddddddddddd smaller; slow
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee smaller; fast
Answer:
()ffffffffffffffffffffffffffffffffffffffffffffffffffffffffff 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.
()gggggggggggggggggggggggggggggggggggggggggggggggggggggggggg larger; fast
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh larger; slow
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii smaller; slow
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj smaller; fast
Answer:
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk When the growth rate of

the money supply is decreased, interest rates will rise immediately if the liquidity effect is _____
()llllllllllllllllllllllllllllllllllllllllllllllllllllllllll larger; fast
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
larger; slow
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn smaller; slow
()oooooooooooooooooooooooooooooooooooooooooooooooooooooooooo smaller; fast
Answer:
()pppppppppppppppppppppppppppppppppppppppppppppppppppppppppp When the growth rate of

the money supply is increased, interest rates will rise immediately if the liquidity effect is _____
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq larger; fast
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr larger; slow
()ssssssssssssssssssssssssssssssssssssssssssssssssssssssssss smaller; slow
()tttttttttttttttttttttttttttttttttttttttttttttttttttttttttt smaller; fast
Answer:
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu If the Fed wants to
permanently lower interest rates, then it should lower the rate of money growth if
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv there is fast adjustment
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
there is slow adjustment of expected inflation.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx the liquidity effect is
smaller than the expected inflation effect.
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy the liquidity effect is
Answer:
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz If the Fed wants to permanently
lower interest rates, then it should raise the rate of money growth if
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa there is fast adjustment of
expected inflation.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbthere is slow adjustment
()ccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc the liquidity effect is smaller
than the expected inflation effect.
()dddddddddddddddddddddddddddddddddddddddddddddddddddddddddddthe liquidity effect is
Answer:
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee Which of the following effects of
a change in the money supply is most likely to affect the interest rate differently than the others?
()fffffffffffffffffffffffffffffffffffffffffffffffffffffffffff The expected inflation effect
()gggggggggggggggggggggggggggggggggggggggggggggggggggggggggggThe income effect
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhThe liquidity effect
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii The price level effect
Answer:
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjMilton Friedman contends that it is entirely possible that

when the money supply rises, interest rates may _____ if the _____ effect is more than offset by
changes in income, the price level, and expected inflation.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkfall; liquidity
()lllllllllllllllllllllllllllllllllllllllllllllllllllllllllll fall; risk
rise; liquidity
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnrise; risk
Answer:
()oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooIt is entirely possible that
when the money supply rises, interest rates may _____ if the _____ effect is more than offset by
changes in income, the price level, and expected inflation.
()pppppppppppppppppppppppppppppppppppppppppppppppppppppppppppfall; liquidity
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqfall; risk
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr rise; liquidity
()sssssssssssssssssssssssssssssssssssssssssssssssssssssssssssrise; risk
Answer:
()ttttttttttttttttttttttttttttttttttttttttttttttttttttttttttt Of the four effects on interest rates from an increase in
the money supply, the one that works in the opposite direction of the other three is the
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuliquidity effect.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvincome effect.
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
price level effect.
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxexpected inflation effect.
Answer:
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
Of the four
effects on interest rates from an increase in the money supply, the initial effect is, generally, the
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz income effect.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
liquidity effect.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
price level
effect.
()cccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc
expected inflation effect.
Answer:
()dddddddddddddddddddddddddddddddddddddddddddddddddddddddddddd
If the liquidity
effect is larger than the other effects, an increase in money growth will
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
lower interest rates.
()ffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff raise interest rates.
()gggggggggggggggggggggggggggggggggggggggggggggggggggggggggggg
cause interest
rates to rise initially but then fall below the initial level.
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
cause interest
rates to fall initially but then rise above the initial level.
Answer:
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
If the liquidity effect is smaller than the other
effects, and the adjustment to expected inflation is slow, then the
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interest rate will fall.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
interest rate will
rise.
()llllllllllllllllllllllllllllllllllllllllllllllllllllllllllll
interest rate will initially fall but eventually climb
above the initial level in response to an increase in money growth.
()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm
interest rate will initially rise but eventually fall below the initial level in response to an increase in
money growth.
Answer:
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
If the liquidity
effect is smaller than the other effects, and the adjustment to expected inflation is immediate,
then the
()oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
interest rate will
fall.
()pppppppppppppppppppppppppppppppppppppppppppppppppppppppppppp
interest rate will
rise.
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
interest rate will
fall immediately below the initial level when the money supply grows.
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
interest rate will rise immediately above
the initial level when the money supply grows.
Answer:
Figure 5-5
()ssssssssssssssssssssssssssssssssssssssssssssssssssssssssssss
Figure 5-5 illustrates the effect of
an increased rate of money supply growth. From the figure, one can conclude that the
()tttttttttttttttttttttttttttttttttttttttttttttttttttttttttttt
liquidity effect is smaller than the expected
inflation effect and interest rates adjust quickly to changes in expected inflation.
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
liquidity effect is
larger than the expected inflation effect and interest rates adjust quickly to changes in expected
inflation.
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
liquidity effect is
larger than the expected inflation effect and interest rates adjust slowly to changes in expected
inflation.
()wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly
to changes in expected inflation.
Answer:
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Figure 5-5
illustrates the effect of an increased rate of money supply growth. From the figure, one can
conclude that the
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
Fisher effect is
dominated by the liquidity effect and interest rates adjust slowly to changes in expected
inflation.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz liquidity effect is dominated by
the Fisher effect and interest rates adjust slowly to changes in expected inflation.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
liquidity effect is
dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
Fisher effect is
smaller than the expected inflation effect and interest rates adjust quickly to changes in expected
inflation.
Answer:
Figure 5-6
()ccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc
Figure 5-6 illustrates the
effect of an increased rate of money supply growth. From the figure, one can conclude that the
()ddddddddddddddddddddddddddddddddddddddddddddddddddddddddddddd
liquidity effect is
inflation.
()eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
liquidity effect is larger
than the expected inflation effect and interest rates adjust quickly to changes in expected
inflation.
()fffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff liquidity effect is larger than the expected
inflation effect and interest rates adjust slowly to changes in expected inflation.
()ggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggg
liquidity effect is
smaller than the expected inflation effect and interest rates adjust slowly
to changes in expected inflation.
Answer:
()hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh
Figure 5-6
illustrates the effect of an increased rate of money supply growth. From the figure, one can
conclude that the
()iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii
Fisher effect is dominated by the liquidity effect
and interest rates adjust slowly to changes in expected inflation.
()jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjliquidity effect is dominated by the Fisher effect and
interest rates adjust slowly to changes in expected inflation.
()kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk
liquidity effect is
dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation.
()lllllllllllllllllllllllllllllllllllllllllllllllllllllllllllll
Fisher effect is smaller than the expected
inflation effect and interest rates adjust quickly to changes in expected inflation.
Answer:
Figure 5-7
Figure 5-7 illustrates the effect of an increased rate of money supply growth. From the figure, one
can conclude that the
()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn
liquidity effect is
inflation.
()ooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo
liquidity effect is
larger than the expected inflation effect and interest rates adjust quickly to changes in expected
inflation.
()ppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppp
liquidity effect is
larger than the expected inflation effect and interest rates adjust slowly to changes in expected
inflation.
()qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq
liquidity effect is
smaller than the expected inflation effect and interest rates adjust slowly to changes in expected
inflation.
Answer:
()rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Figure 5-7 illustrates the effect of an
increased rate of money supply growth. From the figure, one can conclude that the
()sssssssssssssssssssssssssssssssssssssssssssssssssssssssssssss
Fisher effect is dominated by the
liquidity effect and interest rates adjust slowly to changes in expected inflation
()ttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttt
liquidity effect is dominated by the Fisher effect
and interest rates adjust slowly to changes in expected inflation
()uuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuu
liquidity effect is
dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation
()vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
Fisher effect is
inflation
Answer:
Questions for Web Appendix on Asset Pricing

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The riskiness of an asset is measured by
()xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
the magnitude of
its return.
()yyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyyy
the absolute
value of any change in the assets price.
()zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
the standard deviation of
its return.
()aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
all of the above.
()bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
risk is
impossible to measure.
Answer:
)2
The riskiness of an asset that is unique to the particular asset is

()a systematic risk.
()b portfolio risk.
()c investment risk.
()d interest-rate risk.
()e nonsystematic risk.
Answer:
Questions for Web Appendix on Gold

()f
()g
()h
()i
()j
()k
An increase in expected inflation will _____ the ____ for gold, _____ its price.
increase; demand; increasing
decrease; demand; decreasing
increase; supply; increasing
increase; supply; decreasing
decrease; supply; increasing
Answer:
)302 A return to the gold standard, that is, using gold for money will _____ the ____ for gold,
_____ its price.
()l increase; demand; increasing
()m decrease; demand; decreasing
()n increase; supply; increasing
()o increase; supply; decreasing
()p decrease; supply; increasing
Answer:
()q
()r
()s
()t
()u
()v
Discovery of new gold in Alaska will _____ the ____ for gold, _____ its price.
increase; demand; increasing
decrease; demand; decreasing
increase; supply; increasing
increase; supply; decreasing
decrease; supply; increasing
Answer:
)3
Essay Questions
1)
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?
2)
Demonstrate graphically the effect of an increase in the personal savings rate. Show and explain the
effect of increased savings on bond prices and interest rates. How would this change affect capital
spending?
)4
During President Reagans administration, his supporters argued that higher real interest rates were
the result of policies increasing the profitability of investment. Reagans critics argued that the high
interest rates were the result of high budget deficits. Demonstrate graphically and explain how
increased profitability of investments and increased deficits affect bond prices and interest rates.
Based on your graphs, is there merit to either viewpoint?
()a
In the liquidity preference framework, demonstrate graphically the effect of a decrease in

the money supply. Indicate on the graph the excess demand or excess supply of money. Explain
the process of adjustment that results in a change in the equilibrium interest rate, and the
direction of the change in rates.
()b
Economists recognize that interest rates are typically procyclical, meaning that interest rates
increase during economic expansions and decline during recessions. Real income and generally
inflation rise and fall with the economy. Using the liquidity preference model of interest rates,
give three reasons why interest rates are procyclical.

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130Frederic S.

MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

131Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

Chapter 5The Behavior of Interest Rates132

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147Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

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()rrrrrrrrrrrrrrrrrr Holding everything else constant,

149Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

Chapter 5The Behavior of Interest Rates150

151Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

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153Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

Chapter 5The Behavior of Interest Rates154

155Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

()uuuuuuuuuuuuuuuuuuuuuuuuu During a business cycle expansion, the supply of bonds shifts to

Chapter 5The Behavior of Interest Rates156

157Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

Chapter 5The Behavior of Interest Rates158

159Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

Chapter 5The Behavior of Interest Rates160

When prices in the art market become more uncertain,

161Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

()nnnnnnnnnnnnnnnnnnnnnnnnnnnnnnn When prices in the art market become less uncertain,

Chapter 5The Behavior of Interest Rates162

()mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm When the expected inflation rate

163Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

Chapter 5The Behavior of Interest Rates164

165Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

A low savings rate will

Chapter 5The Behavior of Interest Rates166

167Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

()ddddddddddddddddddddddddddddddddddddd In Figure 5-1, one factor that would not have

Chapter 5The Behavior of Interest Rates168

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169Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

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Chapter 5The Behavior of Interest Rates170

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171Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

Chapter 5The Behavior of Interest Rates172

173Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

Chapter 5The Behavior of Interest Rates174

175Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

Chapter 5The Behavior of Interest Rates176

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177Frederic S. MishkinEconomics of Money, Banking, and Financial Markets, Seventh Edition

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Chapter 5The Behavior of Interest Rates178

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