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1、ECON320Chapter 5 Practice TestProfessor C. James Hueng 1) True or false? When the inflation rate is expected to increase, the real cost of borrowing rises at any given interest rate; the supply of bonds increases and the supply curve shifts to the right. A) TrueB) False Figure 5-5 2) True or false?
2、Figure 5-5 illustrates the effect of an increased rate of money supply growth. From the figure, one can conclude that the liquidity effect is not present because the interest rate never drops. A) True.B) False. 3) True or False? When the growth rate of the money supply increases, interest rates end
3、up being permanently higher if the expected inflation effect is larger than the liquidity effect. A) True.B) False. 4) If the expect return on LM stock increases from 3 to 6 percent, and the return on OP stock increases from 6 to 12 percent, the expected return of holding LM stock _ relative to OP s
4、tock and the demand for LM stock _. A) rises; fallsB) falls; fallsC) rises; risesD) falls; rises 5) 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 f
5、or ABC stock _. A) rises; risesB) rises; fallsC) falls; risesD) falls; falls 6) If the expected return on U.S. Treasury bonds rises from 5 to 10 percent and the expected return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock _ relative to U.S. Treasury bonds and t
6、he demand for GE stock _. A) rises; risesB) rises; fallsC) falls; risesD) falls; falls 7) 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; increaseB) increase; decreaseC) decrease; decreaseD) d
7、ecrease; increase 8) When people begin to expect a large stock market decline, the demand curve for bonds shifts to the _ and the interest rate _. A) left; fallsB) right; risesC) left; risesD) right; falls 9) When people begin to expect a run up in large stock market, the demand curve for bonds shif
8、ts to the _ and the interest rate _. A) right; fallsB) left; fallsC) right; risesD) left; rises 10) If the expected return on U.S. Treasury bonds falls from 8 to 7 percent and the expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds _ relative to
9、 U.S. Treasury bonds and the demand for corporate bonds _. A) falls; risesB) falls; fallsC) rises; risesD) rises; falls 11) Holding the expected return on bonds constant, a decrease in the expected return on stocks would _ the demand for bonds, shifting the demand curve to the _. A) decrease; rightB
10、) increase; leftC) increase; rightD) decrease; left 12) As the price of a bond _ and the expected return _, bonds become more attractive to investors and the quantity demanded rises. A) falls; fallsB) rises; risesC) falls; risesD) rises; falls 13) The reduction of brokerage commissions for trading c
11、ommon stocks that occurred in 1975 caused the demand for bonds to _ and the demand curve to shift to the _. A) fall, leftB) rise; rightC) rise; leftD) fall; right 14) If the price of gold becomes less volatile, then, other things equal, the demand for stocks will _ and the demand for antiques will _
12、. A) increase; increaseB) increase; decreaseC) decrease; decreaseD) decrease; increase 15) If fluctuations in interest rates become greater, then, other things equal, the demand for common stocks _ and that of long-term bonds _. A) increases; increasesB) increases; decreases C) decreases; decreasesD
13、) decreases; increases 16) If the price of real estate becomes less volatile, then, other things equal, the demand for stocks will _ and that of antiques will _. A) increase; increaseB) increase; decreaseC) decrease; decreaseD) decrease; increase 17) When stock prices become more volatile, the deman
14、d curve for bonds shifts to the _ and the interest rate _. A) right; risesB) left; risesC) left; fallsD) right; falls 18) All else the same, an increase in the volatility of the stock market causes the demand for bonds to _ and the demand curve to shift to the _. A) fall; rightB) fall; leftC) rise;
15、leftD) rise; right 19) When bond interest rates become less volatile, the demand for bonds _ and the interest rate _. A) decreases; risesB) increases; fallsC) decreases; fallsD) increases; rises 20) An increase in the riskiness of bonds relative to alternative assets causes the demand for bonds to _
16、 and the demand curve to shift to the _. A) fall; rightB) rise; leftC) rise; rightD) fall; left 21) An increase in the riskiness of alternative assets relative to bonds causes the demand for bonds to _ and the demand curve to shift to the _. A) fall; leftB) fall; rightC) rise; rightD) rise; left 22) When bonds become more widely traded, and as a
