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37) 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.
38) 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.
39) 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.
40) 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
41) 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
42) 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
43) 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
44) If real estate prices are expected to drop, all else equal, the demand for bonds ________ and
the interest rate ________.
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls
45) In the figure above, a factor that could cause the supply of bonds to shift to the right is
A) a decrease in government budget deficits.
B) a decrease in expected inflation.
C) a recession.
D) a business cycle expansion.
46) In the figure above, a factor that could cause the demand for bonds to decrease (shift to the
left) is
A) an increase in the expected return on bonds relative to other assets.
B) a decrease in the expected return on bonds relative to other assets.
C) an increase in wealth.
D) a reduction in the riskiness of bonds relative to other assets.
47) In the figure above, the price of bonds would fall from P1 to P2 when
A) inflation is expected to increase in the future.
B) interest rates are expected to fall in the future.
C) the expected return on bonds relative to other assets is expected to increase in the future.
D) the riskiness of bonds falls relative to other assets.
48) In the figure above, a factor that could cause the supply of bonds to increase (shift to the
right) is
A) a decrease in government budget deficits.
B) a decrease in expected inflation.
C) expectations of more profitable investment opportunities.
D) a business cycle recession.
49) In the figure above, a factor that could cause the demand for bonds to shift to the right is
A) an increase in the riskiness of bonds relative to other assets.
B) an increase in the expected rate of inflation.
C) expectations of lower interest rates in the future.
D) a decrease in wealth.
50) In the figure above, the price of bonds would fall from P2 to P1 if
A) there is a business cycle recession.
B) there is a business cycle expansion.
C) inflation is expected to increase in the future.
D) inflation is expected to decrease in the future.
51) Holding everything else constant, if the price of a Bitcoin becomes less volatile, the demand
for bonds ________, the price of bonds ________, and the interest rate ________.
A) falls; falls; rises
B) falls; falls; falls
C) rises; rises; rises
D) rises; falls; rises
52) What is the impact on interest rates when the Federal Reserve decreases the money supply by
selling bonds to the public?
53) Use demand and supply analysis to explain why an expectation of Fed rate hikes would
cause Treasury prices to fall.
1) In Keynes's liquidity preference framework, individuals are assumed to hold their wealth in
two forms
A) real assets and financial assets.
B) stocks and bonds.
C) money and bonds.
D) money and gold.
2) In Keynes's liquidity preference framework
A) the demand for bonds must equal the supply of money.
B) the demand for money must equal the supply of bonds.
C) an excess demand of bonds implies an excess demand for money.
D) an excess supply of bonds implies an excess demand for money.
3) In Keynes's liquidity preference framework, if there is excess demand for money, there is
A) an excess demand for bonds.
B) equilibrium in the bond market.
C) an excess supply of bonds.
D) too much money.
4) The bond supply and demand 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 ________.
A) expected inflation; bonds
B) expected inflation; money
C) government budget deficits; bonds
D) government budget deficits; money
5) Keynes assumed that money has ________ rate of return.
A) a positive
B) a negative
C) a zero
D) an increasing
6) In his Liquidity Preference Framework, Keynes assumed that money has a zero rate of return;
thus
A) when interest rates rise, the expected return on money falls relative to the expected return on
bonds, causing the demand for money to fall.
B) when interest rates rise, the expected return on money falls relative to the expected return on
bonds, causing the demand for money to rise.
C) when interest rates fall, the expected return on money falls relative to the expected return on
bonds, causing the demand for money to fall.
D) when interest rates fall, the expected return on money falls relative to the expected return on
bonds, causing the demand for money to rise.
7) In Keynes's 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.
A) falls; bonds
B) falls; money
C) rises; bonds
D) rises; money
8) The opportunity cost of holding money is
A) the level of income.
B) the price level.
C) the interest rate.
D) the discount rate.
9) An increase in the interest rate
A) increases the demand for money.
B) increases the quantity of money demanded.
C) decreases the demand for money.
D) decreases the quantity of money demanded.
10) If there is an excess supply of money
A) individuals sell bonds, causing the interest rate to rise.
B) individuals sell bonds, causing the interest rate to fall.
C) individuals buy bonds, causing interest rates to fall.
D) individuals buy bonds, causing interest rates to rise.
11) If there is an excess demand for money, individuals ________ bonds, causing interest rates
to ________.
A) sell; rise
B) sell; fall
C) buy; rise
D) buy; fall
12) When the interest rate is above the equilibrium interest rate, there is an excess ________
money and the interest rate will ________.
A) demand for; rise
B) demand for; fall
C) supply of; fall
D) supply of; rise
13) In the market for money, an interest rate below equilibrium results in an excess ________
money and the interest rate will ________.
A) demand for; rise
B) demand for; fall
C) supply of; fall
D) supply of; rise
14) Holding everything else constant in the market for money, as the interest rate rises, the
opportunity cost of holding money ________ thus making money less desirable. So the quantity
of money demanded falls.
A) increases
B) decreases
C) remains the same
D) fluctuates
29
Copyright © 2019 Pearson Education, Inc.
5.5 Changes in Equilibrium Interest Rates in the Liquidity Preference Framework
1) In the Keynesian liquidity preference framework, an increase in the interest rate causes the
demand curve for money to ________, everything else held constant.
A) shift right
B) shift left
C) stay where it is
D) invert
2) In the market for money, a lower level of income 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
3) In the market for money, when real income ________, the demand curve for money shifts to
the ________ and the interest rate ________, everything else held constant.
A) falls; right; rises
B) rises; right; rises
C) falls; left; rises
D) rises; left; rises
4) In the market for money, business cycle expansions increase income, causing money demand
to ________ and interest rates to ________, everything else held constant.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
5) 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
6) In the market for money, 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
7) In the market for money, 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
8) In the market for money, when the price level falls, the ________ curve for nominal money
________, and interest rates ________, everything else held constant.
A) demand; decreases; fall
B) demand; increases; rise
C) supply; increases; rise
D) supply; decreases; fall
9) In the market for money, 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
10) In the market for money, 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
11) In the market for money, 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
12) ________ in the money supply in the market for money 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
13) ________ in the money supply in the market for money 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
14) In the market for money, when the price level falls, the ________ curve for nominal money
________, and interest rates ________, everything else held constant.
A) demand; decreases; fall
B) demand; increases; rise
C) supply; increases; rise
D) supply; decreases; fall
15) In the figure above, one factor NOT responsible for the decline in the demand for money is
A) a decline the price level.
B) a decline in income.
C) an increase in income.
D) a decline in the expected inflation rate.
