Financial Markets and Institutions, 8e (Mishkin)
1) As the price of a bond ________ and the expected return ________, bonds become more
attractive to investors and the quantity demanded rises.
A) falls; rises
B) falls; falls
C) rises; rises
D) rises; falls
2) 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
3) When the price of a bond is above the equilibrium price, there is excess ________ in the bond
market and the price will ________.
A) demand; rise
B) demand; fall
C) supply; fall
D) supply; rise
4) When the price of a bond is below the equilibrium price, there is excess ________ in the bond
market and the price will ________.
A) demand; rise
B) demand; fall
C) supply; fall
D) supply; rise
5) When the price of a bond is ________ the equilibrium price, there is an excess supply of
bonds and the price will ________.
A) above; rise
B) above; fall
C) below; fall
D) below; rise
6) When the price of a bond is ________ the equilibrium price, there is an excess demand for
bonds and the price will ________.
A) above; rise
B) above; fall
C) below; fall
D) below; rise
7) When the interest rate on a bond is above the equilibrium interest rate, there is excess
________ in the bond market and the interest rate will ________.
A) demand; rise
B) demand; fall
C) supply; fall
D) supply; rise
8) When the interest rate on a bond is below the equilibrium interest rate, there is excess
________ in the bond market and the interest rate will ________.
A) demand; rise
B) demand; fall
C) supply; fall
D) supply; rise
9) When the interest rate on a bond is ________ the equilibrium interest rate, there is excess
________ in the bond market and the interest rate will ________.
A) above; demand; fall
B) above; demand; rise
C) below; supply; fall
D) above; supply; rise
10) When the interest rate on a bond is ________ the equilibrium interest rate, there is excess
________ in the bond market and the interest rate will ________.
A) below; demand; rise
B) below; demand; fall
C) below; supply; rise
D) above; supply; fall
11) When the demand for bonds ________ or the supply of bonds ________, interest rates rise.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
12) When the demand for bonds ________ or the supply of bonds ________, interest rates fall.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
13) When the demand for bonds ________ or the supply of bonds ________, bond prices rise.
A) increases; decreases
B) decreases; increases
C) decreases; decreases
D) increases; increases
14) When the demand for bonds ________ or the supply of bonds ________, bond prices fall.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
15) Factors that determine the demand for an asset include changes in the
A) wealth of investors.
B) liquidity of bonds relative to alternative assets.
C) expected returns on bonds relative to alternative assets.
D) risk of bonds relative to alternative assets.
E) all of the above.
16) The demand for an asset rises if ________ falls.
A) risk relative to other assets
B) expected return relative to other assets
C) liquidity relative to other assets
D) wealth
17) The higher the standard deviation of returns on an asset, the ________ the asset’s ________.
A) greater; risk
B) smaller; risk
C) greater; expected return
D) smaller; expected return
18) Diversification benefits an investor by
A) increasing wealth.
B) increasing expected return.
C) reducing risk.
D) increasing liquidity.
19) In a recession when income and wealth are falling, the demand for bonds ________ and the
demand curve shifts to the ________.
A) falls; right
B) falls; left
C) rises; right
D) rises; left
20) During business cycle expansions when income and wealth are rising, the demand for bonds
________ and the demand curve shifts to the ________.
A) falls; right
B) falls; left
C) rises; right
D) rises; left
21) Higher expected interest rates in the future ________ the demand for long-term bonds and
shift the demand curve to the ________.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
22) Lower expected interest rates in the future ________ the demand for long-term bonds and
shift the demand curve to the ________
A) increase; left.
B) increase; right.
C) decrease; left.
D) decrease; right.
23) When people begin to expect a large stock market decline, the demand curve for bonds shifts
to the ________ and the interest rate ________.
A) right; falls
B) right; rises
C) left; falls
D) left; rises
24) When people begin to expect a large run up in stock prices, the demand curve for bonds
shifts to the ________ and the interest rate ________.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
25) An increase in the expected rate of inflation will ________ the expected return on bonds
relative to that on ________ assets, and shift the ________ curve to the left.
A) reduce; financial; demand
B) reduce; real; demand
C) raise; financial; supply
D) raise; real; supply
26) A decrease in the expected rate of inflation will ________ the expected return on bonds
relative to that on ________ assets.
A) reduce; financial
B) reduce; real
C) raise; financial
D) raise; real
27) When the expected inflation rate increases, the demand for bonds ________, the supply of
bonds ________, and the interest rate ________.
A) increases; increases; rises
B) decreases; decreases; falls
C) increases; decreases; falls
D) decreases; increases; rises
28) When the expected inflation rate decreases, the demand for bonds ________, the supply of
bonds ________, and the interest rate ________.
A) increases; increases; rises
B) decreases; decreases; falls
C) increases; decreases; falls
D) decreases; increases; rises
29) When bond prices become more volatile, the demand for bonds ________ and the interest
rate ________.
A) increases; rises
B) increases; falls
C) decreases; falls
D) decreases; rises
30) When bond prices become less volatile, the demand for bonds ________ and the interest rate
________.
A) increases; rises
B) increases; falls
C) decreases; falls
D) decreases; rises
31) When prices in the stock market become more uncertain, the demand curve for bonds shifts
to the ________ and the interest rate ________.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
32) 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
33) 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 ________.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
34) 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
35) Factors that cause the demand curve for bonds to shift to the left include
A) an increase in the inflation rate.
B) an increase in the liquidity of stocks.
C) a decrease in the volatility of stock prices.
D) all of the above.
E) none of the above.
36) Factors that cause the demand curve for bonds to shift to the left include
A) a decrease in the inflation rate.
B) an increase in the volatility of stock prices.
C) an increase in the liquidity of stocks.
D) all of the above.
E) only A and B of the above.
37) During an economic expansion, the supply of bonds ________ and the supply curve shifts to
the ________.
A) increases; left
B) increases; right
C) decreases; left
D) decreases; right
38) During a recession, the supply of bonds ________ and the supply curve shifts to the
________.
A) increases; left
B) increases; right
C) decreases; left
D) decreases; right
39) An increase in expected inflation causes the supply of bonds to ________ and the supply
curve to shift to the ________.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
40) When the federal governments budget deficit increases, the ________ curve for bonds shifts
to the ________.
A) demand; right
B) demand; left
C) supply; left
D) supply; right
41) When the federal government’s budget deficit decreases, the ________ curve for bonds shifts
to the ________.
A) demand; right
B) demand; left
C) supply; left
D) supply; right
42) When the inflation rate is expected to increase, the expected return on bonds relative to real
assets falls for any given interest rate; as a result, the ________ bonds falls and the ________
curve shifts to the left.
A) demand for; demand
B) demand for; supply
C) supply of; demand
D) supply of; supply