Money & Bank MCQ: July 2017

Archive for July 2017

Which of the following statements are true?

A) A decrease in default risk on corporate bonds lowers the demand for these bonds, but increases the demand for default-free bonds.
B) The expected return on corporate bonds decreases as default risk increases.
C) A corporate bond's return becomes less uncertain as default risk increases.
D) As their relative riskiness increases, the expected return on corporate bonds increases relative to the expected return on default-free bonds.

Answer: B

Which of the following statements are true?

As their relative riskiness ________, the expected return on corporate bonds ________ relative to the expected return on default-free bonds, everything else held constant.

As default risk increases, the expected return on corporate bonds ________, and the return becomes ________ uncertain, everything else held constant.

An increase in default risk on corporate bonds ________ the demand for these bonds, but ________ the demand for default-free bonds, everything else held constant.

An increase in the riskiness of corporate bonds will ________ the yield on corporate bonds and ________ the yield on Treasury securities, everything else held constant.

An increase in the riskiness of corporate bonds will ________ the price of corporate bonds and ________ the price of Treasury bonds, everything else held constant.

Other things being equal, an increase in the default risk of corporate bonds shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds to the ________.

If the possibility of a default increases because corporations begin to suffer losses, then the default risk on corporate bonds will ________, and the bonds' returns will become ________ uncertain, meaning that the expected return on these bonds will decrease, everything else held constant.

If a corporation begins to suffer large losses, then the default risk on the corporate bond will

A bond with default risk will always have a ________ risk premium and an increase in its default risk will ________ the risk premium.

If the probability of a bond default increases because corporations begin to suffer large losses, then the default risk on corporate bonds will ________ and the expected return on these bonds will ________, everything else held constant.

The spread between the interest rates on bonds with default risk and default-free bonds is called the

U.S. government bonds have no default risk because

Which of the following bonds are considered to be default-risk free?

Bonds with no default risk are called

The risk that interest payments will not be made, or that the face value of a bond is not repaid when a bond matures is

The risk structure of interest rates is

Using the liquidity preference framework, show what happens to interest rates during a business cycle recession.

Using the liquidity preference framework, what will happen to interest rates if the Fed increases the money supply?

If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is immediate, then the

If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is slow, then the

Of the four effects on interest rates from an increase in the money supply, the initial effect is, generally, the

Of the four effects on interest rates from an increase in the money supply, the one that works in the opposite direction of the other three is the

Milton Friedman contends that it is entirely possible that when the money supply rises, interest rates may ________ if the ________ effect is more than offset by changes in income, the price level, and expected inflation.

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

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

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

______ in the money supply creates excess demand for ________, causing interest rates to ________, everything else held constant.

_____ in the money supply creates excess ________ money, causing interest rates to ________, everything else held constant.

When the price level falls, the ________ curve for nominal money ________, and interest rates ________, everything else held constant.

When the Fed ________ the money stock, the money supply curve shifts to the ________ and the interest rate ________, everything else held constant.

When the Fed decreases the money stock, the money supply curve shifts to the ________ and the interest rate ________, everything else held constant.

Interest rates increased continuously during the 1970s. The most likely explanation is

In the liquidity preference framework, a one-time increase in the money supply results in a price level effect. The maximum impact of the price level effect on interest rates occurs

A decline in the expected inflation rate causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant.

A rise in the price level causes the demand for money to ________ and the interest rate to ________, everything else held constant.

When the price level ________, the demand curve for money shifts to the ________ and the interest rate ________, everything else held constant.

In the Keynesian liquidity preference framework, a rise in the price level causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant.

A business cycle expansion increases income, causing money demand to ________ and interest rates to ________, everything else held constant.

When real income ________, the demand curve for money shifts to the ________ and the interest rate ________, everything else held constant.

A lower level of income causes the demand for money to ________ and the interest rate to ________, everything else held constant.

In the Keynesian liquidity preference framework, an increase in the interest rate causes the demand curve for money to ________, everything else held constant.

In the market for money, an interest rate below equilibrium results in an excess ________ money and the interest rate will ________.

When the interest rate is above the equilibrium interest rate, there is an excess ________ money and the interest rate will ________.

If there is an excess supply of money

An increase in the interest rate

If there is excess demand for money, there is

The opportunity cost of holding money is

In Keynes's liquidity preference framework,

In Keynes's liquidity preference framework, as the expected return on bonds increases (holding everything else unchanged), the expected return on money ________, causing the demand for ________ to fall.

Keynes assumed that money has ________ rate of return.

In Keynes's liquidity preference framework, individuals are assumed to hold their wealth in two forms:

In his Liquidity Preference Framework, Keynes assumed that money has a zero rate of return; thus,

The bond supply and demand 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 ________.

Use demand and supply analysis to explain why an expectation of Fed rate hikes would cause Treasury prices to fall.

What is the impact on interest rates when the Federal Reserve decreases the money supply by selling bonds to the public?

In the figure above, a factor that could cause the supply of bonds to shift to the right is:

Deflation causes the demand for bonds to ________, the supply of bonds to ________, and bond prices to________, everything else held constant.

In the 1990s Japan had the lowest interest rates in the world due to a combination of

When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant.

When an economy grows out of a recession, normally the demand for bonds ________ and the supply of bonds ________, everything else held constant.

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

When the government has a surplus, as occurred in the late 1990s, the ________ curve of bonds shifts to the ________, everything else held constant.

Everything else held constant, when prices in the art market become more uncertain,

If people expect real estate prices to increase significantly, the ________ curve for bonds will shift to the ________, everything else held constant.

When rare coin prices become volatile, the ________ curve for bonds shifts to the ________, everything else held constant.

A decrease in the brokerage commissions in the housing market from 6% to 5% of the sales price will shift the ________ curve for bonds to the ________, everything else held constant.

When the interest rate falls, either the demand for bonds ________ or the supply of bonds ________.

When the interest rate changes,

Everything else held constant, 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.

The economist Irving Fisher, after whom the Fisher effect is named, explained why interest rates ________ as the expected rate of inflation ________, everything else held constant.

Everything else held constant, when the inflation rate is expected to rise, interest rates will _________; this result has been termed the ________.

When the inflation rate is expected to increase, the ________ for bonds falls, while the ________ curve shifts to the right, everything else held constant.

Higher government deficits ________ the supply of bonds and shift the supply curve to the ________, everything else held constant.

As their relative riskiness , the expected return on corporate bonds relative to the expected return on default-free bonds, everything else held constant.

As default risk increases, the expected return on corporate bonds , and the return becomes uncertain, everything else held constant.

An increase in default risk on corporate bonds the demand for these bonds, but the demand for default-free bonds, everything else held constant.

An increase in the riskiness of corporate bonds will the yield on corporate bonds and the yield on Treasury securities, everything else held constant.

An increase in the riskiness of corporate bonds will the price of corporate bonds and the price of Treasury bonds, everything else held constant.

Other things being equal, an increase in the default risk of corporate bonds shifts the demand curve for corporate bonds to the and the demand curve for Treasury bonds to the .

If the possibility of a default increases because corporations begin to suffer losses, then the default risk on corporate bonds will , and the bonds' returns will become uncertain, meaning that the expected return on these bonds will decrease, everything else held constant.

A bond with default risk will always have a risk premium and an increase in its default risk will the risk premium.

If the probability of a bond default increases because corporations begin to suffer large losses, then the default risk on corporate bonds will and the expected return on these bonds will , everything else held constant.

Milton Friedman contends that it is entirely possible that when the money supply rises, interest rates may if the effect is more than offset by changes in income, the price level, and expected inflation.

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

in the money supply creates excess demand for , causing interest rates to __, everything else held constant.

_ in the money supply creates excess money, causing interest rates to ____, everything else held constant.

When the price level falls, the curve for nominal money , and interest rates , everything else held constant.

When the Fed the money stock, the money supply curve shifts to the and the interest rate , everything else held constant.

When the Fed decreases the money stock, the money supply curve shifts to the and the interest rate , everything else held constant.

A decline in the expected inflation rate causes the demand for money to and the demand curve to shift to the , everything else held constant.

A rise in the price level causes the demand for money to and the interest rate to , everything else held constant.

When the price level , the demand curve for money shifts to the and the interest rate , everything else held constant.

In the Keynesian liquidity preference framework, a rise in the price level causes the demand for money to and the demand curve to shift to the , everything else held constant.

A business cycle expansion increases income, causing money demand to and interest rates to , everything else held constant.

When real income , the demand curve for money shifts to the and the interest rate , everything else held constant.

A lower level of income causes the demand for money to and the interest rate to , everything else held constant.

In the market for money, an interest rate below equilibrium results in an excess money and the interest rate will .

When the interest rate is above the equilibrium interest rate, there is an excess money and the interest rate will .

In Keynes's liquidity preference framework, as the expected return on bonds increases (holding everything else unchanged), the expected return on money , causing the demand for to fall.

The bond supply and demand 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 .

Deflation causes the demand for bonds to , the supply of bonds to , and bond prices to, everything else held constant.

When the economy slips into a recession, normally the demand for bonds , the supply of bonds , and the interest rate , everything else held constant.

When an economy grows out of a recession, normally the demand for bonds and the supply of bonds , everything else held constant.

When the expected inflation rate increases, the demand for bonds , the supply of bonds , and the interest rate , everything else held constant.

When the government has a surplus, as occurred in the late 1990s, the curve of bonds shifts to the , everything else held constant.

If people expect real estate prices to increase significantly, the curve for bonds will shift to the , everything else held constant.

When rare coin prices become volatile, the curve for bonds shifts to the , everything else held constant.

A decrease in the brokerage commissions in the housing market from 6% to 5% of the sales price will shift the curve for bonds to the , everything else held constant.

When the interest rate falls, either the demand for bonds or the supply of bonds .

Everything else held constant, 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.

The economist Irving Fisher, after whom the Fisher effect is named, explained why interest rates as the expected rate of inflation , everything else held constant.

Everything else held constant, when the inflation rate is expected to rise, interest rates will _; this result has been termed the .

When the inflation rate is expected to increase, the for bonds falls, while the curve shifts to the right, everything else held constant.

Higher government deficits the supply of bonds and shift the supply curve to the , everything else held constant.