PCh5-6 - Econ 520(Spring 2007 Problems for Chapters 5-6...

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Econ 520 (Spring 2007) Problems for Chapters 5-6 Masao Ogaki CHAPTER 5 Mishkin, pp.124-125, Questions and Problems: 2, 4, 8, 15, 19 1. Multiple-Choice Problems Choose the one alternative that best completes the statement or answers the question. 1. When prices in the stock market become more uncertain, the demand curve for bonds (with the interest rate on the vertical axis) shifts to the ______ and the interest rate ______ . A) right; rises B) right; falls C) left; falls D) left; rises 2. Factors that cause the demand curve for bonds to shift to the right include A) an increase in the interest rate B) an increase in the brokerage commissions on stocks. C) an increase in the expected returns on stocks. D) all of the above. E) none of the above. F) only (a) and (b) of the above. G) only (b) and (c) of the above. 3. Short Answer/Essay Problems (1) What e/ect will a sudden increase in the volatility of stock prices have on interest rates? Answer this question by drawing a supply and demand diagram for bond. 1
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(2) What e/ect will a sudden fall in brokerage commissions on stocks have on interest rates? Answer this question by drawing a supply and demand diagram for bonds. Explain your diagram. (3) Answer the following questions by drawing a demand and supply diagram
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PCh5-6 - Econ 520(Spring 2007 Problems for Chapters 5-6...

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