1. As a result of higher expected inflation,
A) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises.
B) the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls.
C) the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually rises.
D) the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises.
Question 2.2. If expected inflation declines by 2%, what should happen to nominal interest rates according to the Fisher effect?
A) rise by 2%
B) fall by 2%
C) be cut in half
D) double in size
Question 3.3. During an economic recession,
A) the bond demand and supply curves both shift to the left and the equilibrium interest rate usually falls.
B) the bond demand and supply curves both shift to the right and the equilibrium interest rate usually rises.
C) the bond demand curve shifts to the right, the bond supply curve shifts to the left, and the equilibrium interest rate usually falls.
D) the bond demand curve shifts to the left, the bond supply curve shifts to the right, and the equilibrium interest rate usually rises.
Question 4.4. During a period of economic expansion, when expected profitability is high,
A) the demand curve for bonds shifts to the left.
B) the supply curve of bonds shifts to the right.
C) the equilibrium interest rate falls.
D) the equilibrium price of bonds rises.
Question 5.5. The supply curve for bonds would be shifted to the left by
A) a decrease in government borrowing.
B) a decrease in the corporate tax on profits.
C) an increase in tax subsidies for investment.
D) an increase in expected inflation.
Question 6.6. Other things equal, an increase in the tax on dividends is likely to result in all of the following EXCEPT:
higher expected return on bonds relative to stocks
increased demand for bonds
lower interest rates
higher interest rates
Question 7.7. The formula for the yield to maturity, i, on a discount bond is
A) i = (Face value - Discount price)/Discount price.
B) i = (Discount price - Face value)/Discount price.
C) i = (Face value - Discount price)/Face value.
D) i = (Discount price - Face value)/Face value.
Question 8.8. The bond supply curve slopes up because
interest rates rise as bond prices rise.
when bond prices are high, inflation is high.
the lender is willing and able to offer more bonds when the price of the bond is low.
the borrower is willing and able to offer more bonds when the price of the bond is high.
Question 9.9. The demand curve for bonds would be shifted to the left by
an increase in expected returns on other assets.
a decrease in the information costs of bonds relative to other assets.
a decrease in expected inflation.
an increase in the liquidity of bonds relative to other assets.
Question 10.10. Which of the following would NOT cause the demand curve for bonds to shift?
a change in wealth
a change in the price of bonds
a change in the liquidity of bonds
a change in expected inflation