Exam 4: Why Do Interest Rates Change

Factors that can cause the supply curve for bonds to shift to the right include

A rise in the price level causes the demand for money to ________ and the demand curve to shift to the ________

When the expected inflation rate increases, the demand for bonds ________, the supply of bonds ________, and the interest rate ________.

When the economy enters into a boom, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________.

An increase in an asset's expected return relative to that of an alternative asset, holding everything else unchanged, raises the quantity demanded of the asset.

The higher the standard deviation of returns on an asset, the ________ the asset's ________.

When income and wealth are rising, the demand for bonds rises and the demand curve shifts to the right.

Figure 4.1 -In Figure 4.1, the most likely cause of a decrease in the equilibrium interest rate from i₂ to i₁ is

Interest rates are procyclical in that they tend to rise during business cycle expansions and fall during recessions.

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

Use the bond demand and supply framework to explain the Fisher effect and why it occurs.

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

When the federal government's budget deficit decreases, the demand curve for bonds shifts to the right.

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

When the interest rate on a bond is below the equilibrium interest rate, there is excess ________ in the bond market and the interest rate will ________.

Figure 4.2 -In Figure 4.2, one possible explanation for the increase in the interest rate from i₁ to i₂ is a(n)________ in ________.

When the demand for bonds ________ or the supply of bonds ________, bond prices fall.

Holding everything else constant, an increase in wealth lowers the quantity demanded of an asset.

When the price of a bond is below the equilibrium price, there is excess ________ in the bond market and the price will ________.

When the inflation rate is expected to increase, the expected return on bonds relative to real assets falls for any given interest rate; as a result, the ________ bonds falls and the ________ curve shifts to the left.