C H A P T E R 5: THE BEHAVIOR OF INTEREST RATE

1. Theory of asset demand ( Lý thuyết về lượng cầu tài sản):

 The quantity demanded of an asset is positively related to wealth

 The quantity demanded of an asset is positively related to its expected return relative to
alternative assets
 The quantity demanded of an asset is negatively related to the risk of its returns relative
to alternative asset
 The quantity demanded of an asset is positively related to its liquidity relative to
alternative assets

2. What is the relationship between prices and demand?

As prices lower, the quantity demanded of bonds increase. Inverse Relationship

3. What is the relationship between prices and supply?

As prices lower, the quantity supplied of bonds decrease. Positive Relationship

4. What happens when Demand is greater than Supply?

Prices will rise and interest rates will fall

5. What happens when Supply is greater than Demand?

Prices will fall and interest rates will rise

6. What will make Demand Shift to the RIGHT?
Wealth, Increase in Expected Returns, Increase in
Liquidity
Note:
Expected Inflation: lạm phát dự kiến
Expected Profitability: lợi nhuận dự kiến
Expected return: Suất sinh lời kì vọng
Government budget: Ngân sách nhà nước

7. What will make Demand Shift to the LEFT?

increase in Expected Inflation, Increase in Risk

8. What will make Supply Shift to the RIGHT?

Increase in Expected Profitability, Increase in Expected Inflation, Increase in Government

Budget, Expected return decreases

9. What happens when Expected Inflation Rates RISE?

Expected Returns will fall, Real cost of borrowing will decline

10. What happens when in an Expansion?

Businesses more willing to borrow, wealth will increase