Exam 4: Why Do Interest Rates Change

When the growth rate of the money supply decreases, interest rates end up being permanently lower if

Figure 4.3 -In Figure 4.3, an increase in the interest rate from i₂ to i₁ can be explained by

An increase in the federal government budget deficit will raise the interest rate on bonds.

When comparing the loanable funds and liquidity preference frameworks of interest rate determination, which of the following is true?

When the inflation rate is expected to increase, the real cost of borrowing declines at any given interest rate; as a result, the ________ bonds increases and the ________ curve shifts to the right.

When the price of a bond is ________ the equilibrium price, there is an excess supply of bonds and the price will ________.

The more liquid an asset is relative to alternative assets, holding everything else unchanged, the more desirable it is, and the greater the quantity demanded.

Figure 4.2 -In Figure 4.2, one possible explanation for a decrease in the interest rate from i₂ to i₁ is

An increase in the expected rate of inflation causes the demand for bonds to ________ and the supply for bonds to ________.

The loanable funds framework is easier to use when analyzing the effects of changes in ________, while the liquidity preference framework provides a simpler analysis of the effects from changes in income, the price level, and the supply of ________

Factors that cause the demand curve for bonds to shift to the left include

Holding everything else constant, a decrease in the money supply causes

A movement along the demand (or supply)curve occurs when the quantity demanded (or supplied)changes at each given price (or interest rate)of the bond in response to a change in some other factor besides the bond's price or interest rate.

Figure 4.3 -In Figure 4.3, the decrease in the interest rate from i₁ to i₂ can be explained by

Identify and explain the four factors that influence asset demand. Which of these factors affect total asset demand and which influence investors to demand one asset over another?

When the growth rate of the money supply is decreased, interest rates will rise immediately if the liquidity effect is ________ than the other effects and if there is ________ adjustment of expected inflation.

A decline in the expected inflation rate causes the demand for money to ________ and the demand curve to shift to the ________

When the growth rate of the money supply is increased, interest rates will rise immediately if the liquidity effect is ________ than the other effects and if there is ________ adjustment of expected inflation.

If the Fed wants to permanently lower interest rates, then it should lower the rate of money growth if

As the price of a bond ________ and the expected return ________, bonds become more attractive to investors and the quantity demanded rises.