[MB] Chapter 5: The Behavior of Interest Rates

Pieces of property that serve as a store of value are called

• assets
• units of account
• liabilities
• borrowings

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?

• wealth
• expected returns
• risk
• liquidity

If wealth increases, the demand for stocks ________ and that of long-term bonds ________, everything else held constant.

• increases; increases
• increases; decreases
• decreases; decreases
• decreases; increases

Everything else held constant, a decrease in wealth

• increases the demand for stocks
• increases the demand for bonds
• reduces the demand for silver
• increases the demand for gold

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.

• increases
• decreases
• has no effect on
• erases

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 ________.

• rises; rises
• rises; falls
• falls; rises
• falls; falls

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 ________.

• rises; rises
• rises; falls
• falls; rises
• falls; falls

If housing prices are expected to increase, then, other things equal, the demand for houses will ________ and that of Treasury bills will ________.

• increase; increase
• increase; decrease
• decrease; decrease
• decrease; increase

If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ________ and that of Treasury bills will ________.

• increase; increase
• increase; decrease
• decrease; decrease
• decrease; increase

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 ________.

• rises; rises
• rises; falls
• falls; rises
• falls; falls