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A movement along the bond demand or supply curve occurs when ________ changes.

A) bond price
B) income
C) wealth
D) expected return

A

When the price of a bond decreases, all else equal, the bond demand curve ________.

A) shifts right
B) shifts left
C) does not shift
D) inverts

C

During business cycle expansions when income and wealth are rising, the demand for bonds ________ and the demand curve shifts to the ________, everything else held constant.

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

C

Everything else held constant, when households save less, wealth and the demand for bonds ________ and the bond demand curve shifts ________.

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

D

Everything else held constant, if interest rates are expected to fall in the future, the demand for long-term bonds today ________ and the demand curve shifts to the ________.

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

A

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 ________.

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

A

Everything else held constant, an increase in expected inflation, lowers the expected return on ________ compared to ________ assets.

A) bonds; financial
B) bonds; real
C) physical; financial
D) physical; real

B

Everything else held constant, 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 ________.

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

D

Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ________ and the interest rate ________.

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

D

Everything else held constant, when stock prices become ________ volatile, the demand curve for bonds shifts to the ________ and the interest rate ________.

A) more; right; rises
B) more; right; falls
C) less; left; falls
D) less; left; does not change

B

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

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

A

Everything else held constant, 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 ________.

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

D

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 ________.

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

B

Factors that decrease the demand for bonds include

A) an increase in the volatility of stock prices.
B) a decrease in the expected returns on stocks.
C) a decrease in the inflation rate.
D) a decrease in the riskiness of stocks.

D

During a recession, the supply of bonds ________ and the supply curve shifts to the ________, everything else held constant.

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

C

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

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

A

When the expected inflation rate increases, the real cost of borrowing ________ and bond supply ________, everything else held constant.

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

C

An increase in the expected inflation rate causes the supply of bonds to ________ and the supply curve to shift to the ________, everything else held constant.

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

B

Higher government deficits ________ the supply of bonds and shift the supply curve to the ________, everything else held constant.

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

B

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

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

A

When the inflation rate is expected to increase, the ________ for bonds falls, while the ________ curve shifts to the right, everything else held constant.

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

B

When the expected inflation rate increases, the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant.

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

D

Everything else held constant, when the inflation rate is expected to rise, interest rates will ________; this result has been termed the ________.

A) fall; Keynes effect
B) fall; Fisher effect
C) rise; Keynes effect
D) rise; Fisher effect

D

The economist Irving Fisher, after whom the Fisher effect is named, explained why interest rates ________ as the expected rate of inflation ________, everything else held constant.

A) rise; increases
B) rise; stabilizes
C) fall; stabilizes
D) fall; increases

A

Everything else held constant, 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.

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

B

When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant.

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

B

When an economy grows out of a recession, normally the demand for bonds ________ and the supply of bonds ________, everything else held constant.

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

A

Deflation causes the demand for bonds to ________, the supply of bonds to ________, and bond prices to ________, everything else held constant.

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

B

In the 1990s Japan had the lowest interest rates in the world due to a combination of

A) inflation and recession.
B) deflation and expansion.
C) inflation and expansion.
D) deflation and recession.

D

When the interest rate changes,

A) the demand curve for bonds shifts to the right.
B) the demand curve for bonds shifts to the left.
C) the supply curve for bonds shifts to the right.
D) it is because either the demand or the supply curve has shifted.

D

The interest rate falls when either the demand for bonds ________ or the supply of bonds ________.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases

B

When the government has a surplus, as occurred in the late 1990s, the ________ curve of bonds shifts to the ________, everything else held constant.

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

B

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 ________, everything else held constant.

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

B

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

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

A

If people expect real estate prices to increase significantly, the ________ curve for bonds will shift to the ________, everything else held constant.

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

B

Everything else held constant, when prices in the art market become more uncertain,
A) the demand curve for bonds shifts to the left and the interest rate rises.
B) the demand curve for bonds shifts to the left and the interest rate falls.
C) the demand curve for bonds shifts to the right and the interest rate falls.
D) the supply curve for bonds shifts to the right and the interest rate falls.

C

Everything else held constant, when real estate prices are expected to decrease
A) the demand curve for bonds shifts to the left and the interest rate rises.
B) the demand curve for bonds shifts to the left and the interest rate falls.
C) the demand curve for bonds shifts to the right and the interest rate falls.
D) the supply curve for bonds shifts to the right and the interest rate falls.

C

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

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

D

39) If stock prices are expected to climb next year, everything else held constant, the ________ curve for bonds shifts ________ and the interest rate ________.

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

A

If prices in the bond market become more volatile, everything else held constant, the demand curve for bonds shifts ________ and interest rates ________.

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

A

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

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

A

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

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

A

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