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C

hapter4

TheBehaviorofInterestRat

es

4

.1MultipleChoiceQuestions

1)Asthepriceofabond_____

andtheexpecte

dreturn_____,

bondsbecomemore

attractivetoinvestorsandthequantitydemandedrises.

A)

falls;rises

B)

falls;falls

C)

rises;rises

D)

rises;falls

Answer:A

2)Thesupplycurveforbondshastheusualupwardslope,indicatingthatastheprice

_____,

ceterisparibus,the_____

increases.

A)

falls;supply

B)

falls;quantitysupplied

C)

rises;supply

D)

rises;quantitysupplied

Answer:D

3)Whenthepriceofabondisabovetheequilibriumprice,thereisanexcess_____

for(of)bondsandthepricewill_____

A)

demand;rise.

B)

demand;fall.

C)

supply;fall.

D)

supply;rise.

Answer:C

4)Whenthepriceofabondisbelowtheequilibriumprice,thereisanexcess_____

for(of)bondsandthepricewill_____

A)

demand;rise.

B)

demand;fall.

C)

supply;fall.

D)

supply;rise.

Answer:A

5)Whenthepriceofabondis_____

theequilibriumprice,thereisanexcesssupply

ofbondsandthepricewill_____

A)

above;rise.

B)

above;fall.

C)

below;fall.

D)

below;rise.

Answer:B

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6)Whenthepr

iceofabondis_____

theequilibriumprice,thereisanexcessdemand

ofbondsandthepricewill_____

A)

above;

rise.

B)

above;

fall.

C)

below;

fall.

D)

below;

rise.

Answer:D

7)Whentheinterestrateonabondisabovetheequilibriuminte

restrate,inthebond

marketthere

isexcess_____

andtheinterestratewill_____

A)

demand;rise.

B)

demand;fall.

C)

supply;fall.

D)

supply;rise.

Answer:B

8)Whentheinterestrateonabondisbelowtheequilibriuminte

restrate,inthebond

marketthere

isexcess_____

andtheinterestratewill_____

A)

demand;rise.

B)

demand;fall.

C)

supply;fall.

D)

supply;rise.

Answer:D

9)Whentheinterestrateonabondis______

theequilibriumin

terestrate,inthebond

marketthere

isexcess_____

andtheinterestratewill_____

A)

above;

demand;rise.

B)

above;

demand;fall.

C)

below;

supply;fall.

D)

above;

supply;rise.

Answer:B

10)Whentheinterestrateonabondis_____

theequilibriuminterestrate,inthebond

marketthere

isexcess_____

andtheinterestratewill_____

A)

below;

demand;rise.

B)

below;

demand;fall.

C)

below;

supply;fall.

D)

above;

supply;rise.

Answer:A

11)Whenthede

mandforbonds______

orthesupplyofbonds_____,interestraterise.

A)

increas

es;increases.

B)

increas

es;decreases.

C)

decreases;decreases.

D)

decreases;increases.

Answer:D

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4)Whentheexpectedinflationratedecreases,thedemandforbonds_____,

thesupply

ofbonds_____,

andtheinterestrate______

A)

increases;increases;rises.

B)

decreases;decreases;falls.

C)

increases;decreases;falls.

D)

decreases;increases;rises.

Answer:C

2

5)Whenbondinterestratesbecomemorevolatile,thedemandforbonds_____

and

theinterestrate_____

A)

increases;rises.

B)

increases;falls.

C)

decreases;falls.

D)

decreases;rises.

Answer:D

2

6)Whenbondinterestratesbecomelessvolatile,thedemandforbonds_____

andthe

interestrate_____

A)

increases;rises.

B)

increases;falls.

C)

decreases;falls.

D)

decreases;rises.

Answer:B

2

7)Whenpricesinthestockmarketbecomemoreuncertain,thedemandcurvefor

bondsshiftstothe_____

andtheinterestrate_____

A)

right;rises.

B)

right;falls.

C)

left;falls.

D)

left;rises.

Answer:B

2

8)Whenstockpricesbecomelessvolatile,t

hedemandcurveforbondsshiftstothe

_____

andtheinterestrate_____

A)

right;rises.

B)

right;falls.

C)

left;falls.

D)

left;rises.

E)

more;right;rises.

Answer:D

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29)Whenbondsbecomemorewidelytraded,andasaconsequen

cethemarketbecomes

moreliquid,t

hedemandcurveforbondsshiftstothe_____a

ndtheinterestrate

_____

A)

right;rises.

B)

right;falls.

C)

left;falls.

D)

left;ris

es.

Answer:B

30)Whenbondsbecomelesswidelytraded,andasaconsequencethemarketbecomes

lessliquid,thedemandcurveforbondsshiftstothe_____an

dtheinterestrate

_____

A)

right;rises.

B)

right;falls.

C)

left;falls.

D)

left;ris

es.

Answer:D

31)Factorsthat

causethedemandcurveforbondstoshifttotheleftinclude

A)

anincreaseintheinflationrate.

B)

anincreaseintheliquidityofstocks.

C)

adecre

aseinthevolatilityofstockprices.

D)

alloftheabove.

E)

noneoftheabove.

Answer:D

32)Factorsthat

causethedemandcurveforbondstoshifttotheleftinclude

A)

adecre

aseintheinflationrate.

B)

anincreaseinthevolatilityofstockprices.

C)

anincreaseintheliquidityofstocks.

D)

alloftheabove.

E)

only(A

)and(B)oftheabove.

Answer:C

33)Duringaneconomicexpansion,thesupplyofbonds_____a

ndthesupplycurve

shiftstothe

_____

A)

increas

es,left.

B)

increas

es,r

ight.

C)

decreases,left.

D)

decreases,right.

Answer:B

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