1. Individual investors (savers) revise their inflation expectations downward, expected inflation to be lower in the future. Which of the following is the most likely outcome in the financial markets?
A. The demand for funds will decrease and interest rates will fall
B. The demand for funds will increase and interest rates will rise.
C. The supply of funds will increase and interest rates will fall.
D. The supply of funds will decrease and interest rates will rise.
2. The primary functions of financial markets include:
A. Providing a vehicle by which savings can be made available to borrowers and other users of financial capital
B. Making up for the spending shortfall in the economy resulting from the fact that consumers do not spend all of their income
C. Both a and b
D. Neither a nor b
3. Martha expects inflation to increase over the next five years. As a result:
A. Martha will require lower returns on her bond investments
B. Martha will require higher returns on her bond investments
C. The returns Martha requires on her bond investments will not change.
D. It is impossible to tell what will happen to the returns required by Martha on her bond investments