Question 1

The demand for bonds is

Accepted Answer

A) equivalent to the demand for loanable funds. 
B) equivalent to the supply of loanable funds. 
C) represented by an upward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds demanded is on the horizontal axis. 
D) represented by a downward-sloping line when the interest rate is on the vertical axis and the quantity of bonds demanded is on the horizontal axis. 
A) equivalent to the demand for loanable funds. 
B) equivalent to the supply of loanable funds. 
C) represented by an upward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds demanded is on the horizontal axis. 
D) represented by a downward-sloping line when the interest rate is on the vertical axis and the quantity of bonds demanded is on the horizontal axis. B

Question 2

Japan's very low market interest rates in the early 2000s reflected

Accepted Answer

A) expected deflation. 
B) an increasing budget deficit. 
C) an increasing budget surplus. 
D) an increase in corporate profits. 
A) expected deflation. 
B) an increasing budget deficit. 
C) an increasing budget surplus. 
D) an increase in corporate profits. A

Question 3

The supply curve for loanable funds would increase due to a(n)

Accepted Answer

A) increase in wealth. 
B) increase in expected inflation. 
C) decrease in the liquidity of bonds relative to other assets. 
D) increase in the information costs of bonds relative to other assets. 
A) increase in wealth. 
B) increase in expected inflation. 
C) decrease in the liquidity of bonds relative to other assets. 
D) increase in the information costs of bonds relative to other assets. A

Question 4

If the government increases taxes while holding expenditures constant,

Accepted Answer

A) the bond supply curve will shift to the left and the equilibrium interest rate will fall. 
B) the bond supply curve will shift to the right and the real interest rate will fall. 
C) government borrowing will be increased. 
D) the government's deficit will increase. 
A) the bond supply curve will shift to the left and the equilibrium interest rate will fall. 
B) the bond supply curve will shift to the right and the real interest rate will fall. 
C) government borrowing will be increased. 
D) the government's deficit will increase.

Question 5

Investors value liquidity in an asset because

Accepted Answer

A) liquid assets tend to have high rates of return. 
B) liquid assets incur lower selling costs. 
C) liquid assets incur lower tax liabilities. 
D) whereas liquid assets have high information costs, their low risk offsets this. 
A) liquid assets tend to have high rates of return. 
B) liquid assets incur lower selling costs. 
C) liquid assets incur lower tax liabilities. 
D) whereas liquid assets have high information costs, their low risk offsets this.

Question 6

Loanable funds refers to

Accepted Answer

A) only those funds loaned from one bank to another. 
B) only those funds loaned to banks by the Federal Reserve. 
C) only those funds loaned by banks to private individuals. 
D) all those funds changing hands between lenders and borrowers in the bond market. 
A) only those funds loaned from one bank to another. 
B) only those funds loaned to banks by the Federal Reserve. 
C) only those funds loaned by banks to private individuals. 
D) all those funds changing hands between lenders and borrowers in the bond market.

Question 7

A closed economy is one that

Accepted Answer

A) has no government sector. 
B) neither borrows from nor lends to foreign countries. 
C) produces mainly agricultural goods. 
D) produces mainly manufactured goods. 
A) has no government sector. 
B) neither borrows from nor lends to foreign countries. 
C) produces mainly agricultural goods. 
D) produces mainly manufactured goods.

Question 8

The supply curve for bonds would be shifted to the right by

Accepted Answer

A) a decrease in expected profitability. 
B) a decrease in the corporate tax on profits. 
C) a decrease in tax subsidies for investment. 
D) a decrease in government borrowing. 
A) a decrease in expected profitability. 
B) a decrease in the corporate tax on profits. 
C) a decrease in tax subsidies for investment. 
D) a decrease in government borrowing.

Question 9

During 2000, the government repurchased $30 billion in U.S. Treasury bonds outstanding. This was the first time this had been done since the administration of Herbert Hoover in the early 1930s. Analyze the impact of this repurchase on the bond market.

Accepted Answer

The supply curve for bonds wil

Question 10

Most economists credit the decline in short-term nominal rates over the 1980s and early 1990s to

Accepted Answer

A) lower tax rates. 
B) decreased spending by the federal government. 
C) rising prices on the New York Stock Exchange. 
D) the Federal Reserve's fight against inflation. 
A) lower tax rates. 
B) decreased spending by the federal government. 
C) rising prices on the New York Stock Exchange. 
D) the Federal Reserve's fight against inflation.

Question 11

Suppose that businesses in Japan reduce their spending on plant and equipment. What will be the effect on spending on plant and equipment by businesses in the United States?

Accepted Answer

Because Japan is a large open economy, t

Question 12

Suppose that Congress passes a law that prohibits mutual funds from holding corporate bonds. The likely result would be a(an)

Accepted Answer

A) shift to the right in the demand curve for bonds. 
B) shift to the left in the supply curve for loanable funds. 
C) increase in the equilibrium interest rate. 
D) decrease in the equilibrium interest rate. 
A) shift to the right in the demand curve for bonds. 
B) shift to the left in the supply curve for loanable funds. 
C) increase in the equilibrium interest rate. 
D) decrease in the equilibrium interest rate.

Question 13

The supply curve for bonds would be shifted to the left by

Accepted Answer

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. 
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 14

A decrease in expected inflation

Accepted Answer

A) usually leads to falling nominal interest rates. 
B) results in increased nominal capital gains on physical assets. 
C) will shift the bond demand curve to the left. 
D) will shift the supply curve for loanable funds to the left. 
A) usually leads to falling nominal interest rates. 
B) results in increased nominal capital gains on physical assets. 
C) will shift the bond demand curve to the left. 
D) will shift the supply curve for loanable funds to the left.

Question 15

In the bond market, the seller is considered to be

Accepted Answer

A) the lender. 
B) the borrower. 
C) the lender or the borrower depending upon the use to which the funds are put. 
D) the lender or the borrower depending upon whether interest rates are rising or falling. 
A) the lender. 
B) the borrower. 
C) the lender or the borrower depending upon the use to which the funds are put. 
D) the lender or the borrower depending upon whether interest rates are rising or falling.

Question 16

A one-year discount bond with a face value of $1000 has an interest rate of 4%. What is its price?

Accepted Answer

A) $960 
B) $961.54 
C) $996 
D) $1040 
A) $960 
B) $961.54 
C) $996 
D) $1040

Question 17

During an economic recession,

Accepted Answer

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. 
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 18

As wealth increases in the economy, we would expect to observe

Accepted Answer

A) bond prices and interest rates both rise. 
B) bond prices and interest rates both fall. 
C) bond prices rise and interest rates fall. 
D) bond prices fall and interest rates rise. 
A) bond prices and interest rates both rise. 
B) bond prices and interest rates both fall. 
C) bond prices rise and interest rates fall. 
D) bond prices fall and interest rates rise.

Question 19

In an effort to increase government revenue, Congress and the president decide to increase the corporate profits tax. The likely result will be

Accepted Answer

A) the supply curve for bonds shifts to the right. 
B) the demand curve for loanable funds shifts to the left. 
C) the equilibrium interest rate rises. 
D) the equilibrium price of bonds falls. 
A) the supply curve for bonds shifts to the right. 
B) the demand curve for loanable funds shifts to the left. 
C) the equilibrium interest rate rises. 
D) the equilibrium price of bonds falls.

Question 20

If there is an excess supply of loanable funds at a given interest rate, then

Accepted Answer

A) the price of bonds will fall. 
B) the price of bonds will rise. 
C) the interest rate will rise. 
D) the price of bonds may rise or fall depending upon the reasons for the excess supply of loanable funds. 
A) the price of bonds will fall. 
B) the price of bonds will rise. 
C) the interest rate will rise. 
D) the price of bonds may rise or fall depending upon the reasons for the excess supply of loanable funds.

Exam 6: Determining Market Interest Rates

The demand for bonds is

Japan's very low market interest rates in the early 2000s reflected

The supply curve for loanable funds would increase due to a(n)

If the government increases taxes while holding expenditures constant,

Investors value liquidity in an asset because

Loanable funds refers to

A closed economy is one that

The supply curve for bonds would be shifted to the right by

During 2000, the government repurchased $30 billion in U.S. Treasury bonds outstanding. This was the first time this had been done since the administration of Herbert Hoover in the early 1930s. Analyze the impact of this repurchase on the bond market.

Most economists credit the decline in short-term nominal rates over the 1980s and early 1990s to

Suppose that businesses in Japan reduce their spending on plant and equipment. What will be the effect on spending on plant and equipment by businesses in the United States?

Suppose that Congress passes a law that prohibits mutual funds from holding corporate bonds. The likely result would be a(an)

The supply curve for bonds would be shifted to the left by

A decrease in expected inflation

In the bond market, the seller is considered to be

A one-year discount bond with a face value of $1000 has an interest rate of 4%. What is its price?

During an economic recession,

As wealth increases in the economy, we would expect to observe

In an effort to increase government revenue, Congress and the president decide to increase the corporate profits tax. The likely result will be

If there is an excess supply of loanable funds at a given interest rate, then

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters