Practice Ch 5

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Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If wealth decreases, the demand for stocks _____ and that of long-term bonds _____. A) decreases; decreases B) increases; decreases

C) increases; increases D) decreases; increases
1)
2) If the expected return on ABC stock is unchanged and the expected return on CBS stock falls from 10 to 5 percent, then the expected return of holding CBS stock _____ relative to ABC stock and the demand for ABC stock _____.

A) rises; rises B) rises; falls C) falls; rises D) falls; falls 2)
3) If housing prices are suddenly expected to shoot up, then, other things equal, the demand for houses will _____ and that of Treasury bills will _____.
A) increase; increase B) increase; decrease
C) decrease; decrease D) decrease; increase
3)
4) When people begin to expect a run up in large stock market, the demand curve for bonds shifts to the _____ and the interest rate _____.
A) right; falls B) left; rises C) left; falls D) right; rises 4)
5) When stock prices become less volatile, the demand curve for bonds shifts to the _____ and the interest rate _____.
A) left; falls B) left; rises C) right; rises D) right; falls 5)
6) When bonds become less widely traded, and as a consequence the market becomes less liquid, the demand curve for bonds shifts to the _____ and the interest rate _____. A) right; falls B) right; rises C) left; rises D) left; falls 6)

7) The demand curve for bonds has the usual downward slope, indicating that at _____ prices of the bond, everything else equal, the _____ is higher.
A) higher; quantity demanded B) higher; demand
C) lower; demand D) lower; quantity demanded
7)
8) Factors that decrease the demand for bonds include
A) an increase in the volatility of stock prices.
B) a decrease in the inflation rate.
C) a decrease in the expected returns on stocks.
D) all of the above.
E) none of the above.
8)
1
9) You would be more willing to purchase U.S. Treasury bonds, other things equal, if A) gold becomes more liquid.
B) you inherit $1 million from your Uncle Harry.
C) you expect interest rates to rise.
D) any of the above occurs.
E) either B or C of the above occurs.
9)
10) Holding everything else constant,
A) the lower the expected return to asset A relative to alternative assets, the greater will be the demand for asset A.
B) if asset A's risk rises relative to that of alternative assets, the demand will increase for asset A. C) the more liquid is asset A, relative to alternative assets, the greater will be the demand for asset A.

D) only A and B of the above.
10)
11) In a contracting economy with declining wealth, the demand for bonds _____ and the demand curve for bonds shifts to the _____.
A) rises; right B) rises; left C) falls; right D) falls; left 11)
12) Factors that can cause the supply curve for bonds to shift to the left include A) an expansion in overall economic activity.
B) an increase in government deficits.
C) a decrease in expected inflation.
D) only A and C of the above.
12)
13) A decrease in the expected rate of inflation causes the demand curve for bonds to _____ and the supply curve of bonds to _____.
A) rise; fall B) fall; rise C) fall; fall D) rise; rise
13)
14) During a business cycle expansion, the supply of bonds shifts to the _____ as businesses perceive more profitable investment opportunities, while the demand for bonds shifts to the _____ as a result of the increase in wealth generated by the economic expansion. A) left; right B) right; left C) left; left D) right; right

14)
15) Expectations of inflation have a major impact on bond prices and interest rates through the A) Pigou effect. B) Keynes effect. C) Fisher effect. D) Gibson effect. 15)
16) A situation in which the quantity of bonds supplied exceeds the quantity of bonds demanded is called a condition of excess supply; because people want to sell...
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