FMT tutorial 3

If gold becomes acceptable as a medium of exchange, the demand for gold will ________ and the demand for bonds will ______, everything else held constant.

• decrease; decrease

• decrease; increase

• increase; decrease

• increase; increase

The demand curve for bonds has the usual downward slope, indicating that at ________ prices of the bond, everything else equal, the ________ is higher.

• higher; demand

• higher; quantity demanded

• lower; demand

• lower; quantity demanded

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 ________.

• falls; rises

• rises; falls

• rises; rises

• falls; falls

An increase in the expected rate of inflation will ________ the expected return on bonds relative to the that on ________ assets, everything else held constant.

• reduce; financial

• reduce; real

• raise; financial

• raise; real

The theory of asset demand tells us that

• The demand for an asset will increase if the expected return on an asset rises.

• Risky assets have higher liquidity.

•   Risky assets bring higher returns.

• The higher the return on an asset, the lower the liquidity.

At a bond price above the equilibrium

• there is an excess supply and the price will tend to rise.

• there is an excess demand and the price will tend to rise.

• there is an excess demand and the price will tend to fall.

• there is an excess supply and the price will tend to fall.

Suppose the price of bond J rises. This will:

•   increase the supply of bond K and reduce the interest rate on bond K.

• increase the demand for bond K and decrease the interest rate on bond K.

• increase the demand for bond K and increase the interest rate on bond K.

• increase the supply of bond K and increase the interest rate on bond K

Which of the following will increase the supply of bonds (shift the supply curve to the right)?

• A government budget surplus.

• A business cycle expansion.

• An increase in the bond prices.

• A decrease in the expected inflation rate

At interest rates below the equilibrium rate of interest

• there is an excess demand for money and the interest rate will rise.

• there is an excess demand for bonds and the interest rate will fall.

• here is an excess supply of bonds and the interest rate will fall.

• there is an excess demand for money and the interest rate will fall.

Why does the supply curve for bonds slope upward?

• Because as the price falls, firms are more willing to supply bonds.

• Because as the interest rate falls, firms are more willing to borrow money.

• Because as the price rises, firms are more willing to buy bonds.

• Because as the interest rate rises, firms are more willing to borrow money