How is interest rate that prevails in bond market determined

Reference no: EM13751132

Question 1. Which of the following would NOT cause the demand curve for bonds to shift?

a change in wealth

a change in the price of bonds

a change in the liquidity of bonds

a change in expected inflation

Question 2. A one-year discount bond with a face value of $1000 that is currently selling for $900 has an interest rate of

5.26%.

10%.

11.1%.

100%.

Question 3. During a period of economic expansion, when expected profitability is high,

the demand curve for bonds shifts to the left.

the supply curve of bonds shifts to the right.

the equilibrium interest rate falls.

the equilibrium price of bonds rises.

Question 4. Suppose that a new bond rating service is established that specializes in rating municipal bonds that had not previously been rated. The likely result would be a shift to the left in the demand curve for municipal bonds.

a shift to the left in the supply curve for municipal bonds.

an increase in the equilibrium interest rate.

a decrease in the equilibrium interest rate.

Question 5. If the government increases taxes while holding expenditures constant,

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.

Question 6. Suppose that Congress passes an investment tax credit. The likely result will be

the supply curve for bonds will shift to the right.

the demand curve for bonds will shift to the left.

the demand curve for bonds will shift to the right.

the equilibrium interest rate will fall.

Question 7. If expected inflation declines by 2%, what should happen to nominal interest rates according to the Fisher effect?

rise by 2%

fall by 2%

be cut in half

double in size

Question 8. How is the interest rate that prevails in the bond market determined?

by the interaction of stock prices and bond prices

by the decision of the president, in consultation with Congress

by the demand for and supply of bonds

by the Board of Governors of the New York Stock Exchange

Question 9. A decrease in expected inflation

usually leads to falling nominal interest rates.

results in increased nominal capital gains on physical assets.

will shift the bond demand curve to the left.

will shift the supply curve for loanable funds to the left.

Question 10. The demand curve for bonds would be shifted to the left by an

increase in wealth.

increase in expected returns on bonds.

increase in expected inflation.

increase in the liquidity of bonds relative to other assets.

Reference no: EM13751132

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