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The Economics of Money, Banking, and Financial Markets, 9e (Mishkin) Chapter 5 The Behavior of Interest Rates 5.1 Determinants of Asset Demand 1) Pieces of property that serve as a store of value are called A) assets. B) units of account. C) liabilities. D) borrowings. Answer: A Ques Status: New 2) 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 Answer: A Ques Status: Previous Edition 3) 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 Answer: A Ques Status: Previous Edition 4) 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. Answer: C Ques Status: Revised 5) 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 Answer: A Ques Status: New 1 6) 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 Answer: D Ques Status: Previous Edition 7) 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 Answer: A Ques Status: Previous Edition 8) 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 Answer: B Ques Status: Revised 9) 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 Answer: D Ques Status: Previous Edition 2 10) 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 ________.... View Full Document

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