If expected inflation declines by 2%, what should happen to nominal interest rates according to the Fisher effect? (Points : 1)
rise by 2%
fall by 2%
be cut in half
double in size
Question 2. 2. Which of the following would NOT cause the demand curve for bonds to shift? (Points : 1)
a change in wealth
a change in the price of bonds
a change in the liquidity of bonds
a change in expected inflation
Question 3. 3. During an economic recession, (Points : 1)
the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises.
the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls.
the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually falls.
the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises.
Question 4. 4. The supply curve for bonds would be shifted to the right by (Points : 1)
a decrease in expected profitability.
a decrease in the corporate tax on profits.
a decrease in tax subsidies for investment.
a decrease in government borrowing.
Question 5. 5. A one-year discount bond with a face value of $1000 that is currently selling for $900 has an interest rate of (Points : 1)
5.26%.
10%.
11.1%.
100%.
Question 6. 6. As a result of higher expected inflation, (Points : 1)
the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises.
the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls.
the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually rises.
the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises.
Question 7. 7. Businesses typically issue bonds to finance (Points : 1)
their inventories.
payments to their workers.
spending on new plant and equipment.
dividend payments to their stockholders.
Question 8. 8. If bond investors think they lack enough details to evaluate the likelihood of defaults on certain bonds, this will result in higher: (Points : 1)
expected return
liquidity
information costs
expected inflation
Question 9. 9. The demand curve for bonds would be shifted to the left by (Points : 1)
an increase in expected returns on other assets.
a decrease in the information costs of bonds relative to other assets.
a decrease in expected inflation.
an increase in the liquidity of bonds relative to other assets.
Question 10. 10. If the government increases taxes while holding expenditures constant, (Points : 1)
the bond supply curve will shift to the left and the equilibrium interest rate will fall.
the bond supply curve will shift to the right and the real interest rate will fall.
government borrowing will be increased.
the government's deficit will increase.