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1、1 Financial Markets and Institutions,6e(Mishkin/Eakins)Chapter 4 Why Do Interest Rates Change?4.1 Multiple Choice 1)As the price of a bond _ and the expected return _,bonds become more attractive to investors and the quantity demanded rises.A)falls;rises B)falls;falls C)rises;rises D)rises;falls Ans
2、wer:A Question Status:Previous Edition 2)The supply curve for bonds has the usual upward slope,indicating that as the price _,ceteris paribus,the _ increases.A)falls;supply B)falls;quantity supplied C)rises;supply D)rises;quantity supplied Answer:D Question Status:Previous Edition 3)When the price o
3、f a bond is above the equilibrium price,there is excess _ in the bond market and the price will _.A)demand;rise B)demand;fall C)supply;fall D)supply;rise Answer:C Question Status:Previous Edition 4)When the price of a bond is below the equilibrium price,there is excess _ in the bond market and the p
4、rice will _.A)demand;rise B)demand;fall C)supply;fall D)supply;rise Answer:A Question Status:Previous Edition 5)When the price of a bond is _ the equilibrium price,there is an excess supply of bonds and the price will _.A)above;rise B)above;fall C)below;fall D)below;rise Answer:B Question Status:Pre
5、vious Edition 2 6)When the price of a bond is _ the equilibrium price,there is an excess demand for bonds and the price will _.A)above;rise B)above;fall C)below;fall D)below;rise Answer:D Question Status:Previous Edition 7)When the interest rate on a bond is above the equilibrium interest rate,there
6、 is excess _ in the bond market and the interest rate will _.A)demand;rise B)demand;fall C)supply;fall D)supply;rise Answer:B Question Status:Previous Edition 8)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
7、)demand;rise B)demand;fall C)supply;fall D)supply;rise Answer:D Question Status:Previous Edition 9)When the interest rate on a bond is _ the equilibrium interest rate,there is excess _ in the bond market and the interest rate will _.A)above;demand;fall B)above;demand;rise C)below;supply;fall D)above
8、;supply;rise Answer:A Question Status:Previous Edition 10)When the interest rate on a bond is _ the equilibrium interest rate,there is excess _ in the bond market and the interest rate will _.A)below;demand;rise B)below;demand;fall C)below;supply;rise D)above;supply;fall Answer:C Question Status:Pre
9、vious Edition 3 11)When the demand for bonds _ or the supply of bonds _,interest rate rise.A)increases;increases B)increases;decreases C)decreases;decreases D)decreases;increases Answer:D Question Status:Previous Edition 12)When the demand for bonds _ or the supply of bonds _,interest rates fall.A)i
10、ncreases;increases B)increases;decreases C)decreases;decreases D)decreases;increases Answer:B Question Status:Previous Edition 13)When the demand for bonds _ or the supply of bonds _,bond prices rise.A)increases;decreases B)decreases;increases C)decreases;decreases D)increases;increases Answer:A Que
11、stion Status:Previous Edition 14)When the demand for bonds _ or the supply of bonds _,bond prices fall.A)increases;increases B)increases;decreases C)decreases;decreases D)decreases;increases Answer:D Question Status:Previous Edition 15)Factors that determine the demand for an asset include changes i
12、n the A)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:E Question Status:Previous Edition 16)The demand for an asset rises if _ falls.A)risk re
13、lative to other assets B)expected return relative to other assets C)liquidity relative to other assets D)wealth Answer:A Question Status:Previous Edition 4 17)The higher the standard deviation of returns on an asset,the _ is the assets _.A)greater;risk B)smaller;risk C)greater;expected return D)smal
14、ler;expected return Answer:A Question Status:Previous Edition 18)Diversification benefits an investor by A)increasing wealth.B)increasing expected return.C)reducing risk.D)increasing liquidity.Answer:C Question Status:Previous Edition 19)In a recession when income and wealth are falling,the demand f
15、or bonds _ and the demand curve shifts to the _.A)falls;right B)falls;left C)rises;right D)rises;left Answer:B Question Status:Previous Edition 20)During business cycle expansions when income and wealth are rising,the demand for bonds _ and the demand curve shifts to the _.A)falls;right B)falls;left
16、 C)rises;right D)rises;left Answer:C Question Status:Previous Edition 21)For a holding period of one year,the expected return on a consol is _ the higher is the price of the consol today,and _ the higher is the price of the consol next year.A)higher;higher B)higher;lower C)lower;higher D)lower;lower
17、 Answer:C Question Status:Previous Edition 5 22)Higher expected interest rates in the future _ the demand for long-term bonds and shift the demand curve to the _.A)increase;left B)increase;right C)decrease;left D)decrease;right Answer:C Question Status:Previous Edition 23)Lower expected interest rat
18、es in the future _ the demand for long-term bonds and shift the demand curve to the _ A)increase;left.B)increase;right.C)decrease;left.D)decrease;right.Answer:B Question Status:Previous Edition 24)When people begin to expect a large stock market decline,the demand curve for bonds shifts to the _ and
19、 the interest rate _.A)right;falls B)right;rises C)left;falls D)left;rises Answer:A Question Status:Previous Edition 25)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;rises B)right;falls C)left;falls D)left;rises
20、Answer:D Question Status:Previous Edition 26)An increase in the expected rate of inflation will _ the expected return on bonds relative to that on _ assets,and shift the _ curve to the left.A)reduce;financial;demand B)reduce;real;demand C)raise;financial;supply D)raise;real;supply Answer:B Question
21、Status:Previous Edition 6 27)A decrease in the expected rate of inflation will _ the expected return on bonds relative to that on _ assets.A)reduce;financial B)reduce;real C)raise;financial D)raise;real Answer:D Question Status:Previous Edition 28)When the expected inflation rate increases,the deman
22、d for bonds _,the supply of bonds _,and the interest rate _.A)increases;increases;rises B)decreases;decreases;falls C)increases;decreases;falls D)decreases;increases;rises Answer:D Question Status:Previous Edition 29)When the expected inflation rate decreases,the demand for bonds _,the supply of bon
23、ds _,and the interest rate _.A)increases;increases;rises B)decreases;decreases;falls C)increases;decreases;falls D)decreases;increases;rises Answer:C Question Status:Previous Edition 30)When bond interest rates become more volatile,the demand for bonds _ and the interest rate _.A)increases;rises B)i
24、ncreases;falls C)decreases;falls D)decreases;rises Answer:D Question Status:Previous Edition 31)When bond interest rates become less volatile,the demand for bonds _ and the interest rate _.A)increases;rises B)increases;falls C)decreases;falls D)decreases;rises Answer:B Question Status:Previous Editi
25、on 7 32)When prices in the stock market become more uncertain,the demand curve for bonds shifts to the _ and the interest rate _.A)right;rises B)right;falls C)left;falls D)left;rises Answer:B Question Status:Previous Edition 33)When stock prices become less volatile,the demand curve for bonds shifts
26、 to the _ and the interest rate _.A)right;rises B)right;falls C)left;falls D)left;rises Answer:D Question Status:Previous Edition 34)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 rate _.A)right;ris
27、es B)right;falls C)left;falls D)left;rises Answer:B Question Status:Previous Edition 35)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;rises B)right;falls C)left;falls D)left;rises An
28、swer:D Question Status:Previous Edition 36)Factors that cause the demand curve for bonds to shift to the left include A)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:D Question S
29、tatus:Previous Edition 8 37)Factors that cause the demand curve for bonds to shift to the left include A)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:C Question Status:P
30、revious Edition 38)During an economic expansion,the supply of bonds _ and the supply curve shifts to the _.A)increases,left B)increases,right C)decreases,left D)decreases,right Answer:B Question Status:Previous Edition 39)During a recession,the supply of bonds _ and the supply curve shifts to the _.
31、A)increases,left B)increases,right C)decreases,left D)decreases,right Answer:C Question Status:Previous Edition 40)An increase in expected inflation causes the supply of bonds to _ and the supply curve to shift to the _.A)increase,left B)increase,right C)decrease,left D)decrease,right Answer:B Quest
32、ion Status:Previous Edition 41)When the federal governments budget deficit increases,the _ curve for bonds shifts to the _.A)demand;right B)demand;left C)supply;left D)supply;right Answer:D Question Status:Previous Edition 9 42)When the federal governments budget deficit decreases,the _ curve for bo
33、nds shifts to the _.A)demand;right B)demand;left C)supply;left D)supply;right Answer:C Question Status:Previous Edition 43)When the inflation rate is expected 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 _ cu
34、rve shifts to the left.A)demand for;demand B)demand for;supply C)supply of;demand D)supply of;supply Answer:A Question Status:Previous Edition 44)When the inflation rate is expected to increase,the real cost of borrowing declines at any given interest rate;as a result,the _ bonds increases and the _
35、 curve shifts to the right.A)demand for;demand B)demand for;supply C)supply of;demand D)supply of;supply Answer:D Question Status:Previous Edition 10 Figure 4.1 45)In Figure 4.1,the most likely cause of the increase in the equilibrium interest rate from i1 to i2 is A)an increase in the price of bond
36、s.B)a business cycle boom.C)an increase in the expected inflation rate.D)a decrease in the expected inflation rate.Answer:C Question Status:Previous Edition 46)In Figure 4.1,the most likely cause of the increase in the equilibrium interest rate from i1 to i2 is a(n)_ in the _.A)increase;expected inf
37、lation rate B)decrease;expected inflation rate C)increase;government budget deficit D)decrease;government budget deficit Answer:A Question Status:Previous Edition 47)In Figure 4.1,the most likely cause of a decrease in the equilibrium interest rate from i2 to i1 is A)an increase in the expected infl
38、ation 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:B Question Status:Previous Edition 11 48)Factors that can cause the supply curve for bonds to shift to the right include A)an expansion in overall economic activity
39、.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:A Question Status:Previous Edition 49)Factors that can cause the supply curve for bonds to shift to the left include A)an expansion in overall economic activity.B)a decrease
40、in expected inflation.C)an increase in government deficits.D)only A and C of the above.Answer:B Question Status:Previous Edition 50)The economist Irving Fisher,after whom the Fisher effect is named,explained why interest rates _ as the expected rate of inflation _.A)rise;increases B)rise;stabilizes
41、C)rise;decreases D)fall;increases E)fall;stabilizes Answer:A Question Status:Previous Edition 51)An increase in the expected rate of inflation causes the demand for bonds to _ and the supply for bonds to _.A)fall;fall B)fall;rise C)rise;fall D)rise;rise Answer:B Question Status:Previous Edition 52)A
42、 decrease in the expected rate of inflation causes the demand for bonds to _ and the supply of bonds to _.A)fall;fall B)fall;rise C)rise;fall D)rise;rise Answer:C Question Status:Previous Edition 12 53)When the economy slips into a recession,normally the demand for bonds _,the supply of bonds _,and
43、the interest rate _.A)increases;increases;rises B)decreases;decreases;falls C)increases;decreases;falls D)decreases;increases;rises Answer:B Question Status:Previous Edition 54)When the economy enters into a boom,normally the demand for bonds _,the supply of bonds _,and the interest rate _.A)increas
44、es;increases;rises B)decreases;decreases;falls C)increases;decreases;rises D)decreases;increases;rises Answer:A Question Status:Previous Edition Figure 4.2 55)In Figure 4.2,one possible explanation for the increase in the interest rate from i1 to i2 is a(n)_ in _.A)increase;the expected inflation ra
45、te B)decrease;the expected inflation rate C)increase;economic growth D)decrease;economic growth Answer:C Question Status:Previous Edition 56)In Figure 4.2,one possible explanation for the increase in the interest rate from i1 to i2 is A)an increase in economic growth.B)an increase in government budg
46、et deficits.C)a decrease in government budget deficits.D)a decrease in economic growth.E)a decrease in the riskiness of bonds relative to other investments.Answer:A Question Status:Previous Edition 13 57)In Figure 4.2,one possible explanation for a decrease in the interest rate from i2to i1 is A)an
47、increase in government budget deficits.B)an increase in expected inflation.C)a decrease in economic growth.D)a decrease in the riskiness of bonds relative to other investments.Answer:C Question Status:Previous Edition 58)In Keyness liquidity preference framework,individuals are assumed to hold their
48、 wealth in two forms:A)real assets and financial assets.B)stocks and bonds.C)money and bonds.D)money and gold.Answer:C Question Status:Previous Edition 59)In his liquidity preference framework,Keynes assumed that money has a zero rate of return;thus,when interest rates _ the expected return on money
49、 falls relative to the expected return on bonds,causing the demand for money to _.A)rise;fall B)rise;rise C)fall;fall D)fall;rise Answer:A Question Status:Previous Edition 60)The loanable funds framework is easier to use when analyzing the effects of changes in _,while the liquidity preference frame
50、work provides a simpler analysis of the effects from changes in income,the price level,and the supply of _ A)expected inflation;bonds.B)expected inflation;money.C)government budget deficits;bonds.D)the supply of money;bonds.Answer:B Question Status:Previous Edition 61)When comparing the loanable fun