The Bond Market Quiz

As general business conditions deteriorate, all other factors constant:

• the demand for bonds will decrease.

• the supply of bonds will increase.

• bond prices will decrease.

• bond yields will increase.

As general business conditions improve, all other factors constant the:

• price of bonds will increase.

• yield on bonds will increase.

• bond demand curve shifts right.

• bond supply curve shifts left.

As general business conditions deteriorate, all other factors constant:

• the bond supply curve will shift left.

• there will be a movement down the existing bond supply curve.

• the bond demand curve shifts left.

• the price of bonds will decrease.

When expected inflation increases, for any given nominal interest rate the:

• cost of borrowing increases and the desire to borrow decreases.

• real interest rate increases.

• bond supply curve shifts to the left.

• cost of borrowing decreases and the desire to borrow increases.

When expected inflation decreases for any given nominal interest rate, all of the following occur except the:

• real interest rate decreases.

• bond supply curve shifts to the left.

• cost of borrowing increases and the desire to borrow decreases.

• price of bonds increases.

When expected inflation increases, for any given nominal interest rate the:

• bond demand curve shifts right.

• bond supply curve shifts right.

• price of bonds increases.

• yield on bonds will increase.

When expected inflation increases, for any given nominal interest rate the:

• real cost of repayment for bond issuers increases.

• real return for bondholders increases.

• real cost of repayment for bond issuers decreases.

• bond demand curve shifts right.

If the federal government were to offer larger tax breaks on the purchase of new equipment for businesses, all other factors constant, we would expect to see the:

• bond demand curve shift right.

• bond supply curve shift left.

• bond supply curve shift right.

• bond demand curve shift left.

Which of the following would lead to an increase in bond supply?

• A decrease in government spending relative to revenue.

• An increase in corporate taxes.

• A decrease in expected inflation.

• An improvement in general business conditions.

Which of the following would lead to a decrease in bond demand?

• An increase in expected inflation.

• An increase in wealth.

• A decrease in risk.

• A decrease in liquidity.