tb_chap05

# tb_chap05 - Chapter5 TheBehaviorofInterestRates 5.1...

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Chapter 5 The Behavior of Interest Rates 5.1 Determinants of Asset Demand 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 Answer: A Ques Status: New 2) 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 3) 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 housing. D) increases the demand for housing. Answer: C Ques Status: Revised

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Chapter 5 The Behavior of Interest Rates 99 4) 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: Revised 5) 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: Revised 6) If housing prices are suddenly expected to shoot up, 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: Previous Edition 7) 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
100 Mishkin · Economics of Money, Banking, and Financial Markets , Eighth Edition 8) 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 Answer: C Ques Status: Revised 9) 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

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## This document was uploaded on 10/28/2011 for the course 220 301 at Rutgers.

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tb_chap05 - Chapter5 TheBehaviorofInterestRates 5.1...

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