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Q:
The bond supply curve is ________ sloping, indicating a(n) ________ relationship between the price and quantity supplied of bonds, everything else equal.
A. downward; inverse
B. downward; direct
C. upward; inverse
D. upward; direct
Q:
The supply curve for bonds has the usual upward slope, indicating that as the price ________, ceteris paribus, the ________ increases.
A. falls; supply
B. falls; quantity supplied
C. rises; supply
D. rises; quantity supplied
Q:
The bond demand curve is ________ sloping, indicating a(n) ________ relationship between the price and quantity demanded of bonds, everything else equal.
A. downward; inverse
B. downward; direct
C. upward; inverse
D. upward; direct
Q:
The demand curve for bonds has the usual downward slope, indicating that at ________ prices of the bond, everything else equal, the ________ is higher.
A. higher; demand
B. higher; quantity demanded
C. lower; demand
D. lower; quantity demanded
Q:
In the bond market, the bond demanders are the ________ and the bond suppliers are the ________.
A. lenders; borrowers
B. lenders; advancers
C. borrowers; lenders
D. borrowers; advancers
Q:
Everything else held constant, would an increase in volatility of stock prices have any impact on the demand for rare coins? Why or why not?
Q:
If prices in the diamond market become less volatile, all else equal, then the demand for diamonds ________ and the demand for gold ________.
A. increases; decreases
B. increases; increases
C. decreases; decreases
D. decreases; increases
Q:
If the price of diamonds is expected to decrease, all else equal, then the demand for diamonds ________ and the demand for platinum ________.
A. decreases; increases
B. decreases; decreases
C. increases; increases
D. increases; decreases
Q:
Holding all other factors constant, the quantity demanded of an asset is
A. positively related to wealth.
B. negatively related to its expected return relative to alternative assets.
C. positively related to the risk of its returns relative to alternative assets.
D. negatively related to its liquidity relative to alternative assets.
Q:
Holding everything else constant
A. if asset A's risk rises relative to that of alternative assets, the demand will increase for asset A.
B. the more liquid is asset A, relative to alternative assets, the greater will be the demand for asset A.
C. the lower the expected return to asset A relative to alternative assets, the greater will be the demand for asset A.
D. if wealth increases, demand for asset A increases and demand for alternative assets decreases.
Q:
The demand for houses decreases, all else equal, when
A. wealth increases.
B. real estate prices are expected to increase.
C. stock prices become more volatile.
D. gold prices are expected to increase.
Q:
The demand for gold increases, other things equal, when
A. the market for silver becomes more liquid.
B. interest rates are expected to rise.
C. interest rates are expected to fall.
D. real estate prices are expected to increase.
Q:
You would be more willing to buy AT&T bonds (holding everything else constant) if
A. the brokerage commissions on bond sales become cheaper.
B. interest rates are expected to rise.
C. your wealth has decreased.
D. you expect diamonds to appreciate in value.
Q:
You would be less willing to purchase U.S. Treasury bonds, other things equal, if
A. you inherit $1 million from your Uncle Harry.
B. you expect interest rates to fall.
C. gold becomes more liquid.
D. stock prices are expected to fall.
Q:
The demand for silver decreases, other things equal, when
A. the gold market is expected to boom.
B. the market for silver becomes more liquid.
C. wealth grows rapidly.
D. interest rates are expected to rise.
Q:
The demand for Picasso paintings rises (holding everything else equal) when
A. stocks become easier to sell.
B. people expect a boom in real estate prices.
C. Treasury securities become riskier.
D. people expect gold prices to rise.
Q:
If gold becomes acceptable as a medium of exchange, the demand for gold will ________ and the demand for bonds will ________, everything else held constant.
A. decrease; decrease
B. decrease; increase
C. increase; increase
D. increase; decrease
Q:
If brokerage commissions on bond sales decrease, then, other things equal, the demand for bonds will ________ and the demand for real estate will ________.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Q:
If the price of gold becomes less volatile, then, other things equal, the demand for stocks will ________ and the demand for antiques will ________.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Q:
If fluctuations in interest rates become smaller, then, other things equal, the demand for stocks ________ and the demand for long-term bonds ________.
A. increases; increases
B. increases; decreases
C. decreases; decreases
D. decreases; increases
Q:
An increase in the expected rate of inflation will ________ the expected return on bonds relative to the that on ________ assets, everything else held constant.
A. reduce; financial
B. reduce; real
C. raise; financial
D. raise; real
Q:
Everything else held constant, if the expected return on U.S. Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds ________ relative to U.S. Treasury bonds and the demand for corporate bonds ________.
A. rises; rises
B. rises; falls
C. falls; rises
D. falls; falls
Q:
Everything else held constant, if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent, then the expected return of holding RST stock ________ relative to XYZ stock and demand for XYZ stock ________.
A. rises; rises
B. rises; falls
C. falls; rises
D. falls; falls
Q:
If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ________ and that of Treasury bills will ________.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Q:
If housing prices are expected to increase, then, other things equal, the demand for houses will ________ and that of Treasury bills will ________.
A. increase; increase
B. increase; decrease
C. decrease; decrease
D. decrease; increase
Q:
Everything else held constant, 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 ________.
A. rises; rises
B. rises; falls
C. falls; rises
D. falls; falls
Q:
Everything else held constant, 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 ________.
A. rises; rises
B. rises; falls
C. falls; rises
D. falls; falls
Q:
An increase in an asset's expected return relative to that of an alternative asset, holding everything else constant, ________ the quantity demanded of the asset.
A. increases
B. decreases
C. has no effect on
D. erases
Q:
Everything else held constant, a decrease in wealth
A. increases the demand for stocks.
B. increases the demand for bonds.
C. reduces the demand for silver.
D. increases the demand for gold.
Q:
If wealth increases, the demand for stocks ________ and that of long-term bonds ________, everything else held constant.
A. increases; increases
B. increases; decreases
C. decreases; decreases
D. decreases; increases
Q:
Of the four factors that influence asset demand, which factor will cause the demand for all assets to increase when it increases, everything else held constant?
A) wealth
B) expected returns
C) risk
D) liquidity
Q:
Pieces of property that serve as a store of value are called
A. assets.
B. units of account.
C. liabilities.
D. borrowings.
Q:
In the loanable funds framework, the ________ is measured on the vertical axis.
A. price of bonds
B. interest rate
C. quantity of bonds
D. quantity of loanable funds
Q:
In the loanable funds framework, the ________ curve of bonds is equivalent to the ________ curve of loanable funds.
A. demand; demand
B. demand; supply
C. supply; supply
D. supply; equilibrium
Q:
The price of gold should be ________ to the expected inflation rate.
A. positively related
B. negatively related
C. inversely related
D. unrelated
Q:
An increase in the expected inflation rate will ________ the ________ for gold, ________ its price, everything else held constant.
A. increase; demand; increasing
B. decrease; demand; decreasing
C. increase; supply; increasing
D. decrease; supply; increasing
Q:
Discovery of new gold in Alaska will ________ the ________ of gold, ________ its price, everything else held constant.
A. increase; demand; increasing
B. decrease; demand; decreasing
C. decrease; supply; increasing
D. increase; supply; decreasing
Q:
When gold prices become more volatile, the ________ curve for gold shifts to the ________; ________ the price of gold.
A. supply; right; increasing
B. supply; left; increasing
C. demand; right; decreasing
D. demand; left; decreasing
Q:
A return to the gold standard, that is, using gold for money will ________ the ________ for gold, ________ its price, everything else held constant.
A. increase; demand; increasing
B. decrease; demand; decreasing
C. increase; supply; increasing
D. decrease; supply; increasing
Q:
When stock prices become more volatile, the ________ curve for gold shifts right and gold prices ________, everything else held constant.
A. demand; increase
B. demand; decrease
C. supply; increase
D. supply; decrease
Q:
In contrast to the CAPM, the APT assumes that there can be several sources of ________ that cannot be eliminated through diversification.
A. nonsystematic risk
B. systematic risk
C. credit risk
D. arbitrary risk
Q:
Both the CAPM and APT suggest that an asset should be priced so that it has a higher expected return
A. when it has a greater systematic risk.
B. when it has a greater risk in isolation.
C. when it has a lower systematic risk.
D. when it has a lower systematic risk and a lower risk in isolation.
Q:
The risk of a well-diversified portfolio depends only on the ________ risk of the assets in the portfolio.
A. systematic
B. nonsystematic
C. portfolio
D. investment
Q:
The riskiness of an asset that is unique to the particular asset is
A. systematic risk.
B. portfolio risk.
C. investment risk.
D. nonsystematic risk.
Q:
A higher ________ means that an asset's return is more sensitive to changes in the value of the market portfolio.
A. alpha
B. beta
C. CAPM
D. APT
Q:
The ________ the returns on two securities move together, the ________ benefit there is from diversification.
A. less; more
B. less; less
C. more; more
D. more; greater
Q:
Holding many risky assets and thus reducing the overall risk an investor faces is called
A. diversification.
B. foolishness.
C. risk acceptance.
D. capitalization.
Q:
The riskiness of an asset is measured by
A. the magnitude of its return.
B. the absolute value of any change in the asset's price.
C. the standard deviation of its return.
D. risk is impossible to measure.
Q:
Interest rates increased continuously during the 1970s. The most likely explanation is
A. banking failures that reduced the money supply.
B. a rise in the level of income.
C. the repeated bouts of recession and expansion.
D. increasing expected rates of inflation.
Q:
The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that theA. Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation.B. liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation.C. liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation.D. Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.
Q:
The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that theA. liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.B. liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.C. liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.D. liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.
Q:
The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that theA. Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation.B. liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation.C. liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation.D. Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.
Q:
The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that theA. liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.B. liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.C. liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.D. liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.
Q:
In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that theA. Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation.B. liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation.C. liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation.D. Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.
Q:
In the figure above, illustrates the effect of an increased rate of money supply growth at time period 0. From the figure, one can conclude that theA. liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.B. liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.C. liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.D. liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation.
Q:
If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is immediate, then theA. interest rate will fall.B. interest rate will rise.C. interest rate will fall immediately below the initial level when the money supply grows.D. interest rate will rise immediately above the initial level when the money supply grows.
Q:
If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is slow, then the
A. interest rate will fall.
B. interest rate will rise.
C. interest rate will initially fall but eventually climb above the initial level in response to an increase in money growth.
D. interest rate will initially rise but eventually fall below the initial level in response to an increase in money growth.
Q:
If the Fed wants to permanently lower interest rates, then it should raise the rate of money growth if
A. there is fast adjustment of expected inflation.
B. there is slow adjustment of expected inflation.
C. the liquidity effect is smaller than the expected inflation effect.
D. the liquidity effect is larger than the other effects.
Q:
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.
A. larger; fast
B. larger; slow
C. smaller; slow
D. smaller; fast
Q:
When the growth rate of the money supply increases, interest rates end up being permanently lower if
A. the liquidity effect is larger than the other effects.
B. there is fast adjustment of expected inflation.
C. there is slow adjustment of expected inflation.
D. the expected inflation effect is larger than the liquidity effect.
Q:
It is 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.
A. fall; liquidity
B. fall; risk
C. rise; liquidity
D. rise; risk
Q:
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
A. liquidity effect.
B. income effect.
C. price level effect.
D. expected inflation effect.
Q:
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
A. at the moment the price level hits its peak (stops rising) because both the price level and expected inflation effects are at work.
B. immediately after the price level begins to rise, because both the price level and expected inflation effects are at work.
C. at the moment the expected inflation rate hits its peak.
D. at the moment the inflation rate hits it peak.
Q:
Of the four effects on interest rates from an increase in the money supply, the initial effect is, generally, the
A. income effect.
B. liquidity effect.
C. price level effect.
D. expected inflation effect.
Q:
Milton Friedman called the response of lower interest rates resulting from an increase in the money supply the ________ effect.
A. liquidity
B. price level
C. expected-inflation
D. income
Q:
Using the liquidity preference framework, show what happens to interest rates during a business cycle recession.
Q:
Using the liquidity preference framework, what will happen to interest rates if the Fed increases the money supply?
Q:
In the figure above, the decrease in the interest rate from i1 to i2 can be explained byA. a decrease in money growth.B. an increase in money growth.C. a decline in the expected price level.D. an increase in income.
Q:
In the figure above, the factor responsible for the decline in the interest rate isA. a decline the price level.B. a decline in income.C. an increase in the money supply.D. a decline in the expected inflation rate.
Q:
In the figure above, the decrease in the interest rate from i1 to i2 can be explained byA. a decrease in money growth.B. a decline in the expected price level.C. an increase in income.D. an increase in the expected price level.
Q:
In the figure above, one factor NOT responsible for the decline in the demand for money isA. a decline the price level.B. a decline in income.C. an increase in income.D. a decline in the expected inflation rate.
Q:
________ in the money supply creates excess demand for ________, causing interest rates to ________, everything else held constant.
A. An increase; money; rise
B. An increase; bonds; fall
C. A decrease; bonds; rise
D. A decrease; money; fall
Q:
________ in the money supply creates excess ________ money, causing interest rates to ________, everything else held constant.
A. A decrease; demand for; rise
B. An increase; demand for; fall
C. An increase; supply of; rise
D. A decrease; supply of; fall
Q:
When the Fed ________ the money stock, the money supply curve shifts to the ________ and the interest rate ________, everything else held constant.
A. decreases; right; rises
B. increases; right; falls
C. decreases; left; falls
D. increases; left; rises
Q:
When the Fed decreases the money stock, the money supply curve shifts to the ________ and the interest rate ________, everything else held constant.
A. right; rises
B. right; falls
C. left; falls
D. left; rises
Q:
A decline in the expected inflation rate causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant.
A. decrease; right
B. decrease; left
C. increase; right
D. increase; left
Q:
When the price level falls, the ________ curve for nominal money ________, and interest rates ________, everything else held constant.A. demand; decreases; fallB. demand; increases; riseC. supply; increases; riseD. supply; decreases; fall
Q:
A rise in the price level causes the demand for money to ________ and the interest rate to ________, everything else held constant.
A. decrease; decrease
B. decrease; increase
C. increase; decrease
D. increase; increase
Q:
When the price level ________, the demand curve for money shifts to the ________ and the interest rate ________, everything else held constant.
A. falls; right; rises
B. rises; right; falls
C. falls; left; rises
D. rises; right; rises
Q:
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 ________, everything else held constant.
A. increase; left
B. increase; right
C. decrease; left
D. decrease; right