1、1Copyright 2012 Pearson Education, Inc.Financial Markets and Institutions, 7e (Mishkin)Chapter 4 Why Do Interest Rates Change?4.1 Multiple Choice1) As the price of a bond _ and the expected return _, bonds become more attractive to investors and the quantity demanded rises.A) falls; risesB) falls; f
2、allsC) rises; risesD) rises; fallsAnswer: A2) The supply curve for bonds has the usual upward slope, indicating that as the price _, ceteris paribus, the _ increases.A) falls; supplyB) falls; quantity suppliedC) rises; supplyD) rises; quantity suppliedAnswer: D3) When the price of a bond is above th
3、e equilibrium price, there is excess _ in the bond market and the price will _.A) demand; riseB) demand; fallC) supply; fallD) supply; riseAnswer: C4) When the price of a bond is below the equilibrium price, there is excess _ in the bond market and the price will _.A) demand; riseB) demand; fallC) s
4、upply; fallD) supply; riseAnswer: A5) When the price of a bond is _ the equilibrium price, there is an excess supply of bonds and the price will _.A) above; riseB) above; fallC) below; fallD) below; riseAnswer: B2Copyright 2012 Pearson Education, Inc.6) When the price of a bond is _ the equilibrium
5、price, there is an excess demand for bonds and the price will _.A) above; riseB) above; fallC) below; fallD) below; riseAnswer: D7) When the interest rate on a bond is above the equilibrium interest rate, there is excess _ in the bond market and the interest rate will _.A) demand; riseB) demand; fal
6、lC) supply; fallD) supply; riseAnswer: B8) 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 _.A) demand; riseB) demand; fallC) supply; fallD) supply; riseAnswer: D9) When the interest rate on a bond is _ the equi
7、librium interest rate, there is excess _ in the bond market and the interest rate will _.A) above; demand; fallB) above; demand; riseC) below; supply; fallD) above; supply; riseAnswer: A10) When the interest rate on a bond is _ the equilibrium interest rate, there is excess _ in the bond market and
8、the interest rate will _.A) below; demand; riseB) below; demand; fallC) below; supply; riseD) above; supply; fallAnswer: C3Copyright 2012 Pearson Education, Inc.11) When the demand for bonds _ or the supply of bonds _, interest rates rise.A) increases; increasesB) increases; decreasesC) decreases; d
9、ecreasesD) decreases; increasesAnswer: D12) When the demand for bonds _ or the supply of bonds _, interest rates fall.A) increases; increasesB) increases; decreasesC) decreases; decreasesD) decreases; increasesAnswer: B13) When the demand for bonds _ or the supply of bonds _, bond prices rise.A) inc
10、reases; decreasesB) decreases; increasesC) decreases; decreasesD) increases; increasesAnswer: A14) When the demand for bonds _ or the supply of bonds _, bond prices fall.A) increases; increasesB) increases; decreasesC) decreases; decreasesD) decreases; increasesAnswer: D15) Factors that determine th
11、e demand for an asset include changes in theA) wealth of investors.B) liquidity of bonds relative to alternative assets.C) expected returns on bonds relative to alternative assets.D) risk of bonds relative to alternative assets.E) all of the above.Answer: E16) The demand for an asset rises if _ fall
12、s.A) risk relative to other assetsB) expected return relative to other assetsC) liquidity relative to other assetsD) wealthAnswer: A4Copyright 2012 Pearson Education, Inc.17) The higher the standard deviation of returns on an asset, the _ the assets _.A) greater; riskB) smaller; riskC) greater; expe
13、cted returnD) smaller; expected returnAnswer: A18) Diversification benefits an investor byA) increasing wealth.B) increasing expected return.C) reducing risk.D) increasing liquidity.Answer: C19) In a recession when income and wealth are falling, the demand for bonds _ and the demand curve shifts to
14、the _.A) falls; rightB) falls; leftC) rises; rightD) rises; leftAnswer: B20) During business cycle expansions when income and wealth are rising, the demand for bonds _ and the demand curve shifts to the _.A) falls; rightB) falls; leftC) rises; rightD) rises; leftAnswer: C21) Higher expected interest
15、 rates in the future _ the demand for long-term bonds and shift the demand curve to the _.A) increase; leftB) increase; rightC) decrease; leftD) decrease; rightAnswer: C5Copyright 2012 Pearson Education, Inc.22) Lower expected interest rates in the future _ the demand for long-term bonds and shift t
16、he demand curve to the _A) increase; left.B) increase; right.C) decrease; left.D) decrease; right.Answer: B23) When people begin to expect a large stock market decline, the demand curve for bonds shifts to the _ and the interest rate _.A) right; fallsB) right; risesC) left; fallsD) left; risesAnswer
17、: A24) When people begin to expect a large run up in stock prices, the demand curve for bonds shifts to the _ and the interest rate _.A) right; risesB) right; fallsC) left; fallsD) left; risesAnswer: D25) An increase in the expected rate of inflation will _ the expected return on bonds relative to t
18、hat on _ assets, and shift the _ curve to the left.A) reduce; financial; demandB) reduce; real; demandC) raise; financial; supplyD) raise; real; supplyAnswer: B26) A decrease in the expected rate of inflation will _ the expected return on bonds relative to that on _ assets.A) reduce; financialB) red
19、uce; realC) raise; financialD) raise; realAnswer: D6Copyright 2012 Pearson Education, Inc.27) When the expected inflation rate increases, the demand for bonds _, the supply of bonds _, and the interest rate _.A) increases; increases; risesB) decreases; decreases; fallsC) increases; decreases; fallsD
20、) decreases; increases; risesAnswer: D28) When the expected inflation rate decreases, the demand for bonds _, the supply of bonds _, and the interest rate _.A) increases; increases; risesB) decreases; decreases; fallsC) increases; decreases; fallsD) decreases; increases; risesAnswer: C29) When bond
21、prices become more volatile, the demand for bonds _ and the interest rate _.A) increases; risesB) increases; fallsC) decreases; fallsD) decreases; risesAnswer: D30) When bond prices become less volatile, the demand for bonds _ and the interest rate _.A) increases; risesB) increases; fallsC) decrease
22、s; fallsD) decreases; risesAnswer: B31) When prices in the stock market become more uncertain, the demand curve for bonds shifts to the _ and the interest rate _.A) right; risesB) right; fallsC) left; fallsD) left; risesAnswer: B7Copyright 2012 Pearson Education, Inc.32) When stock prices become les
23、s volatile, the demand curve for bonds shifts to the _ and the interest rate _.A) right; risesB) right; fallsC) left; fallsD) left; risesAnswer: D33) When bonds become more widely traded, and as a consequence the market becomes more liquid, the demand curve for bonds shifts to the _ and the interest
24、 rate _.A) right; risesB) right; fallsC) left; fallsD) left; risesAnswer: B34) 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; risesB) right; fallsC) left; fallsD) left; risesAnswe
25、r: D35) Factors that cause the demand curve for bonds to shift to the left includeA) an increase in the inflation rate.B) an increase in the liquidity of stocks.C) a decrease in the volatility of stock prices.D) all of the above.E) none of the above.Answer: D36) Factors that cause the demand curve f
26、or bonds to shift to the left includeA) a decrease in the inflation rate.B) an increase in the volatility of stock prices.C) an increase in the liquidity of stocks.D) all of the above.E) only A and B of the above.Answer: C8Copyright 2012 Pearson Education, Inc.37) During an economic expansion, the s
27、upply of bonds _ and the supply curve shifts to the _.A) increases, leftB) increases, rightC) decreases, leftD) decreases, rightAnswer: B38) During a recession, the supply of bonds _ and the supply curve shifts to the _.A) increases, leftB) increases, rightC) decreases, leftD) decreases, rightAnswer
28、: C39) An increase in expected inflation causes the supply of bonds to _ and the supply curve to shift to the _.A) increase, leftB) increase, rightC) decrease, leftD) decrease, rightAnswer: B40) When the federal governments budget deficit increases, the _ curve for bonds shifts to the _.A) demand; r
29、ightB) demand; leftC) supply; leftD) supply; rightAnswer: D41) When the federal governments budget deficit decreases, the _ curve for bonds shifts to the _.A) demand; rightB) demand; leftC) supply; leftD) supply; rightAnswer: C9Copyright 2012 Pearson Education, Inc.42) When the inflation rate is exp
30、ected 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.A) demand for; demandB) demand for; supplyC) supply of; demandD) supply of; supplyAnswer: A43) When the inflation rate is expec
31、ted 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.A) demand for; demandB) demand for; supplyC) supply of; demandD) supply of; supplyAnswer: DFigure 4.144) In Figure 4.1, the most likely cause of the
32、 increase in the equilibrium interest rate from i1 to i2 isA) an increase in the price of bonds.B) a business cycle boom.C) an increase in the expected inflation rate.D) a decrease in the expected inflation rate.Answer: C45) In Figure 4.1, the most likely cause of the increase in the equilibrium int
33、erest rate from i1 to i2 is a(n) _ in the _.A) increase; expected inflation rateB) decrease; expected inflation rateC) increase; government budget deficitD) decrease; government budget deficitAnswer: A10Copyright 2012 Pearson Education, Inc.46) In Figure 4.1, the most likely cause of a decrease in t
34、he equilibrium interest rate from i2 to i1 isA) an increase in the expected inflation rate.B) a decrease in the expected inflation rate.C) a business cycle expansion.D) a combination of both A and C of the above.Answer: B47) Factors that can cause the supply curve for bonds to shift to the right inc
35、ludeA) an expansion in overall economic activity.B) a decrease in expected inflation.C) a decrease in government deficits.D) all of the above.E) only A and B of the above.Answer: A48) Factors that can cause the supply curve for bonds to shift to the left includeA) an expansion in overall economic ac
36、tivity.B) a decrease in expected inflation.C) an increase in government deficits.D) only A and C of the above.Answer: B49) The economist Irving Fisher, after whom the Fisher effect is named, explained why interest rates _ as the expected rate of inflation _.A) rise; increasesB) rise; stabilizesC) rise; decreasesD) fall; increasesE) fall; stabilizesAnswer: A50) An increase in the expected rate of inflation causes the demand for bonds to _ and the supply for bonds to _.A) fall; fallB) fall; riseC) rise; fallD) rise; riseAnswer: B
