Question 1

Of the four factors that influence asset demand,which factor will cause the demand for all assets to increase when it increases,everything else held constant?
A)wealth
B)expected returns
C)risk
D)liquidity

Accepted Answer

When wealth increases, people have more money to spend and invest, which leads to an increase in demand for all assets. Everything else held constant, this factor will cause the demand for all assets to increase.

Question 2

If gold becomes acceptable as a medium of exchange,the demand for gold will ________ and the demand for bonds will ________,everything else held constant.
A)decrease;decrease
B)decrease;increase
C)increase;increase
D)increase;decrease

Accepted Answer

If gold becomes acceptable as a medium of exchange, the demand for it will increase as people will be willing to hold it in order to make transactions. On the other hand, the demand for bonds will decrease as their relative attractiveness decreases compared to gold.

Question 3

If the price of gold becomes less volatile,then,other things equal,the demand for stocks will ________ and the demand for antiques will ________.
A)increase;increase
B)increase;decrease
C)decrease;decrease
D)decrease;increase

Accepted Answer

When the price of gold becomes less volatile, investors are more likely to invest in gold as a safe haven asset, leading to a decrease in demand for stocks. The demand for antiques may also decrease as investors may see them as less attractive compared to the stability of gold.

Question 4

If stock prices are expected to drop dramatically,then,other things equal,the demand for stocks will ________ and that of Treasury bills will ________.
A)increase;increase
B)increase;decrease
C)decrease;decrease
D)decrease;increase

Accepted Answer

If stock prices are expected to drop dramatically, investors' confidence in the stock market decreases and they are more likely to shift their investments to safer options, like Treasury bills. This will result in a decrease in the demand for stocks and an increase in the demand for Treasury bills.

Question 5

The demand for Picasso paintings rises (holding everything else equal)when
A)stocks become easier to sell.
B)people expect a boom in real estate prices.
C)Treasury securities become riskier.
D)people expect gold prices to rise.

Accepted Answer

When Treasury securities, which are considered safe investments, become riskier, investors may look for alternative investments, such as art, to preserve their wealth. Picasso paintings, being valuable and sought after, could see an increase in demand as a result.

Question 6

Everything else held constant,if the expected return on U.S.Treasury bonds falls from 10 to 5 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 the demand for GE stock ________.
A)rises;rises
B)rises;falls
C)falls;rises
D)falls;falls

Accepted Answer

When the expected return on U.S. Treasury bonds falls, it becomes less attractive to investors, leading them to seek higher returns elsewhere. As a result, the expected return on holding GE stock (which has now risen to 8 percent) becomes relatively more attractive than holding U.S. Treasury bonds (which now offer an expected return of 5 percent). This increase in relative attractiveness leads to an increase in the demand for GE stock, driving up its price and potentially leading to a rise in its expected return as well.

Question 7

You would be more willing to buy AT&T bonds (holding everything else constant)if
A)the brokerage commissions on bond sales become cheaper.
B)interest rates are expected to rise.
C)your wealth has decreased.
D)you expect diamonds to appreciate in value.

Accepted Answer

Cheaper brokerage commissions on bond sales reduce the transaction costs associated with buying bonds, making them more attractive to investors.

Question 8

If brokerage commissions on bond sales decrease,then,other things equal,the demand for bonds will ________ and the demand for real estate will ________.
A)increase;increase
B)increase;decrease
C)decrease;decrease
D)decrease;increase

Accepted Answer

When brokerage commissions on bond sales decrease, it becomes cheaper for investors to buy bonds, making bonds more attractive. This increases the demand for bonds. As investors shift their money into bonds, there's less demand for alternative investments like real estate, leading to a decrease in demand for real estate.

Question 9

The demand for silver decreases,other things equal,when
A)the gold market is expected to boom.
B)the market for silver becomes more liquid.
C)wealth grows rapidly.
D)interest rates are expected to rise.

Accepted Answer

The answer of The demand for silver decreases,other things equal,when
A)the...

Question 10

Everything else held constant,a decrease in wealth
A)increases the demand for stocks.
B)increases the demand for bonds.
C)reduces the demand for silver.
D)increases the demand for gold.

Accepted Answer

A decrease in wealth would lead to a decrease in disposable income, which could lead to a decrease in demand for luxury goods such as silver.

Question 11

Pieces of property that serve as a store of value are called
A)assets.
B)units of account.
C)liabilities.
D)borrowings.

Accepted Answer

Assets are items of property held by individuals or companies that have value and that can be converted into cash. Assets can serve as a store of value, as they hold value until they are sold or liquidated. Units of account are a standard way of measuring the value of goods and services, liabilities are debts owed by individuals or companies, and borrowings are funds borrowed by individuals or companies.

Question 12

Everything else held constant,if the expected return on ABC stock rises from 5 to 10 percent and the expected return on CBS stock is unchanged,then the expected return of holding CBS stock ________ relative to ABC stock and the demand for CBS stock ________.
A)rises;rises
B)rises;falls
C)falls;rises
D)falls;falls

Accepted Answer

The answer of Everything else held constant,if the expected return...

Question 13

If wealth increases,the demand for stocks ________ and that of long-term bonds ________,everything else held constant.
A)increases;increases
B)increases;decreases
C)decreases;decreases
D)decreases;increases

Accepted Answer

The answer of If wealth increases,the demand for stocks ________...

Question 14

If housing prices are expected to increase,then,other things equal,the demand for houses will ________ and that of Treasury bills will ________.
A)increase;increase
B)increase;decrease
C)decrease;decrease
D)decrease;increase

Accepted Answer

When housing prices are expected to increase, the demand for houses typically increases as people try to buy before prices go up further. Conversely, the demand for Treasury bills might decrease as investors shift their money to the housing market, expecting higher returns.

Question 15

If fluctuations in interest rates become smaller,then,other things equal,the demand for stocks ________ and the demand for long-term bonds ________.
A)increases;increases
B)increases;decreases
C)decreases;decreases
D)decreases;increases

Accepted Answer

When fluctuations in interest rates become smaller, the demand for long-term bonds increases because investors are less worried about interest rate risk. On the other hand, the demand for stocks decreases as investors seek less risky investments.

Question 16

Everything else held constant,if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent,then the expected return of holding RST stock ________ relative to XYZ stock and demand for XYZ stock ________.
A)rises;rises
B)rises;falls
C)falls;rises
D)falls;falls

Accepted Answer

The expected return of RST stock relative to XYZ stock falls because the decline in expected return is larger for RST (from 12% to 9%) than for XYZ (from 8% to 7%). Consequently, the relative attractiveness of XYZ stock increases, leading to a rise in demand for XYZ stock.

Question 17

An increase in an asset's expected return relative to that of an alternative asset,holding everything else constant,________ the quantity demanded of the asset.
A)increases
B)decreases
C)has no effect on
D)erases

Accepted Answer

An increase in expected return makes the asset more attractive compared to other investment options, increasing the demand for the asset.

Question 18

Everything else held constant,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 U.S.Treasury bonds and the demand for corporate bonds ________.
A)rises;rises
B)rises;falls
C)falls;rises
D)falls;falls

Accepted Answer

When the expected return on U.S. Treasury bonds falls from 8 to 7 percent, the demand for corporate bonds will increase as investors will seek higher returns elsewhere. However, since the expected return on corporate bonds also falls from 10 to 8 percent, the relative return of corporate bonds to U.S. Treasury bonds will fall, making corporate bonds less attractive to investors. Therefore, the expected return of corporate bonds falls relative to U.S. Treasury bonds and the demand for corporate bonds falls as well.

Question 19

You would be less willing to purchase U.S.Treasury bonds,other things equal,if
A)you inherit $1 million from your Uncle Harry.
B)you expect interest rates to fall.
C)gold becomes more liquid.
D)stock prices are expected to fall.

Accepted Answer

Gold becoming more liquid means it's easier to buy and sell, making it a more attractive investment compared to U.S. Treasury bonds.

Question 20

An increase in the expected rate of inflation will ________ the expected return on bonds relative to the that on ________ assets,everything else held constant.
A)reduce;financial
B)reduce;real
C)raise;financial
D)raise;real

Accepted Answer

An increase in expected inflation reduces the purchasing power of the interest and principal payments on nominal bonds, which lowers the expected return on bonds relative to real assets. In other words, the increase in inflation makes the nominal return on bonds worth less in real terms, thus lowering their relative return compared to real assets.

Quiz 5: The Behavior of Interest Rates

Of the four factors that influence asset demand,which factor will cause the demand for all assets to increase when it increases,everything else held constant?

If gold becomes acceptable as a medium of exchange,the demand for gold will and the demand for bonds will ,everything else held constant.

If the price of gold becomes less volatile,then,other things equal,the demand for stocks will and the demand for antiques will .

If stock prices are expected to drop dramatically,then,other things equal,the demand for stocks will and that of Treasury bills will .

The demand for Picasso paintings rises (holding everything else equal) when

Everything else held constant,if the expected return on U.S.Treasury bonds falls from 10 to 5 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 the demand for GE stock .

You would be more willing to buy AT&T bonds (holding everything else constant) if

If brokerage commissions on bond sales decrease,then,other things equal,the demand for bonds will and the demand for real estate will .

The demand for silver decreases,other things equal,when

Everything else held constant,a decrease in wealth

Pieces of property that serve as a store of value are called

Everything else held constant,if the expected return on ABC stock rises from 5 to 10 percent and the expected return on CBS stock is unchanged,then the expected return of holding CBS stock relative to ABC stock and the demand for CBS stock .

If wealth increases,the demand for stocks and that of long-term bonds ,everything else held constant.

If housing prices are expected to increase,then,other things equal,the demand for houses will and that of Treasury bills will .

If fluctuations in interest rates become smaller,then,other things equal,the demand for stocks and the demand for long-term bonds .

Everything else held constant,if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent,then the expected return of holding RST stock relative to XYZ stock and demand for XYZ stock .

An increase in an asset's expected return relative to that of an alternative asset,holding everything else constant,________ the quantity demanded of the asset.

Everything else held constant,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 U.S.Treasury bonds and the demand for corporate bonds .

You would be less willing to purchase U.S.Treasury bonds,other things equal,if

An increase in the expected rate of inflation will the expected return on bonds relative to the that on assets,everything else held constant.