A movement along the bond demand or supply curve occurs when ________ changes.

Changes in Equilibrium Interest Rates
1) A movement along the bond demand or supply curve occurs when ________ changes.
A) bond price
B) income
C) wealth
D) expected return
Answer: A
Ques Status: Previous Edition
2) When the price of a bond decreases, all else equal, the bond demand curve ________.
A) shifts right
B) shifts left
C) does not shift
D) inverts
Answer: C
Ques Status: Previous Edition

3) During business cycle expansions when income and wealth are rising, the demand for bonds
________ and the demand curve shifts to the ________, everything else held constant.
A) falls; right
B) falls; left
C) rises; right
D) rises; left
Answer: C
Ques Status: Previous Edition
4) Everything else held constant, when households save less, wealth and the demand for bonds
________ and the bond demand curve shifts ________.
A) increase; right
B) increase; left
C) decrease; right
D) decrease; left
Answer: D
Ques Status: Previous Edition
5) Everything else held constant, if interest rates are expected to fall in the future, the demand for
long-term bonds today ________ and the demand curve shifts to the ________.
A) rises; right
B) rises; left
C) falls; right
D) falls; left
Answer: A
Ques Status: Previous Edition
6) Holding the expected return on bonds constant, an increase in the expected return on common
stocks would ________ the demand for bonds, shifting the demand curve to the ________.
A) decrease; left
B) decrease; right
C) increase; left
D) increase; right
Answer: A
Ques Status: Previous Edition
7) Everything else held constant, an increase in expected inflation, lowers the expected return on
________ compared to ________ assets.
A) bonds; financial
B) bonds; real
C) physical; financial
D) physical; real
Answer: B
Ques Status: Previous Edition

8) Everything else held constant, an increase in the riskiness of bonds relative to alternative assets
causes the demand for bonds to ________ and the demand curve to shift to the ________.
A) rise; right
B) rise; left
C) fall; right
D) fall; left
Answer: D
Ques Status: Previous Edition
9) Everything else held constant, when stock prices become less volatile, the demand curve for
bonds shifts to the ________ and the interest rate ________.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
Answer: D
Ques Status: Previous Edition
10) Everything else held constant, when stock prices become ________ volatile, the demand curve
for bonds shifts to the ________ and the interest rate ________.
A) more; right; rises
B) more; right; falls
C) less; left; falls
D) less; left; does not change
Answer: B
Ques Status: Previous Edition
11) Everything else held constant, an increase in the liquidity of bonds results in a ________ in
demand for bonds and the demand curve shifts to the ________.
A) rise; right
B) rise; left
C) fall; right
D) fall; left
Answer: A
Ques Status: Previous Edition
12) Everything else held constant, when bonds become less widely traded, and as a consequence the
market becomes less liquid, the demand curve for bonds shifts to the ________ and the interest
rate ________.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
Answer: D
Ques Status: Previous Edition

13) The reduction of brokerage commissions for trading common stocks that occurred in 1975
caused the demand for bonds to ________ and the demand curve to shift to the ________.
A) fall; right
B) fall, left
C) rise; right
D) rise; left
Answer: B
Ques Status: Previous Edition
14) Factors that decrease the demand for bonds include
A) an increase in the volatility of stock prices.
B) a decrease in the expected returns on stocks.
C) a decrease in the inflation rate.
D) a decrease in the riskiness of stocks.
Answer: D
Ques Status: Previous Edition
15) During a recession, the supply of bonds ________ and the supply curve shifts to the ________,
everything else held constant.
A) increases; left
B) increases; right
C) decreases; left
D) decreases; right
Answer: C
Ques Status: Previous Edition
16) In a business cycle expansion, the ________ of bonds increases and the ________ curve shifts to
the ________ as business investments are expected to be more profitable.
A) supply; supply; right
B) supply; supply; left
C) demand; demand; right
D) demand; demand; left
Answer: A
Ques Status: New
17) When the expected inflation rate increases, the real cost of borrowing ________ and bond supply
________, everything else held constant.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Answer: C
Ques Status: Previous Edition

18) An increase in the expected inflation rate causes the supply of bonds to ________ and the supply
curve to shift to the ________, everything else held constant.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
Answer: B
Ques Status: Previous Edition
19) Higher government deficits ________ the supply of bonds and shift the supply curve to the
________, everything else held constant.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
Answer: B
Ques Status: Previous Edition
20) Factors that can cause the supply curve for bonds to shift to the right include
A) an expansion in overall economic activity.
B) a decrease in expected inflation.
C) a decrease in government deficits.
D) a business cycle recession.
Answer: A
Ques Status: Previous Edition
21) When the inflation rate is expected to increase, the ________ for bonds falls, while the ________
curve shifts to the right, everything else held constant.
A) demand; demand
B) demand; supply
C) supply; demand
D) supply; supply
Answer: B
Ques Status: Previous Edition
22) When the expected inflation rate increases, the demand for bonds ________, the supply of bonds
________, and the interest rate ________, everything else held constant.
A) increases; increases; rises
B) decreases; decreases; falls
C) increases; decreases; falls
D) decreases; increases; rises
Answer: D
Ques Status: Previous Edition

23) Everything else held constant, when the inflation rate is expected to rise, interest rates will
________; this result has been termed the ________.
A) fall; Keynes effect
B) fall; Fisher effect
C) rise; Keynes effect
D) rise; Fisher effect
Answer: D
Ques Status: Previous Edition
24) The economist Irving Fisher, after whom the Fisher effect is named, explained why interest rates
________ as the expected rate of inflation ________, everything else held constant.
A) rise; increases
B) rise; stabilizes
C) fall; stabilizes
D) fall; increases
Answer: A
Ques Status: Previous Edition
25) Everything else held constant, during a business cycle expansion, the supply of bonds shifts to
the ________ as businesses perceive more profitable investment opportunities, while the
demand for bonds shifts to the ________ as a result of the increase in wealth generated by the
economic expansion.
A) right; left
B) right; right
C) left; left
D) left; right
Answer: B
Ques Status: Previous Edition
26) When the economy slips into a recession, normally the demand for bonds ________, the supply
of bonds ________, and the interest rate ________, everything else held constant.
A) increases; increases; rises
B) decreases; decreases; falls
C) increases; decreases; falls
D) decreases; increases; rises
Answer: B
Ques Status: Previous Edition
27) When an economy grows out of a recession, normally the demand for bonds ________ and the
supply of bonds ________, everything else held constant.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
Answer: A
Ques Status: Previous Edition

28) Deflation causes the demand for bonds to ________, the supply of bonds to ________, and bond
prices to ________, everything else held constant.
A) increase; increase; increase
B) increase; decrease; increase
C) decrease; increase; increase
D) decrease; decrease; increase
Answer: B
Ques Status: Previous Edition
29) In the 1990s Japan had the lowest interest rates in the world due to a combination of
A) inflation and recession.
B) deflation and expansion.
C) inflation and expansion.
D) deflation and recession.
Answer: D
Ques Status: Previous Edition
30) When the interest rate changes,
A) the demand curve for bonds shifts to the right.
B) the demand curve for bonds shifts to the left.
C) the supply curve for bonds shifts to the right.
D) it is because either the demand or the supply curve has shifted.
Answer: D
Ques Status: Previous Edition
31) The interest rate falls when either the demand for bonds ________ or the supply of bonds
________.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
Answer: B
Ques Status: Revised
32) When the government has a surplus, as occurred in the late 1990s, the ________ curve of bonds
shifts to the ________, everything else held constant.
A) supply; right
B) supply; left
C) demand; right
D) demand; left
Answer: B
Ques Status: Previous Edition

33) A decrease in the brokerage commissions in the housing market from 6% to 5% of the sales price
will shift the ________ curve for bonds to the ________, everything else held constant.
A) demand; right
B) demand; left
C) supply; right
D) supply; left
Answer: B
Ques Status: Previous Edition
34) When rare coin prices become volatile, the ________ curve for bonds shifts to the ________,
everything else held constant.
A) demand; right
B) demand; left
C) supply; right
D) supply; left
Answer: A
Ques Status: Previous Edition
35) If people expect real estate prices to increase significantly, the ________ curve for bonds will
shift to the ________, everything else held constant.
A) demand; right
B) demand; left
C) supply; left
D) supply; right
Answer: B
Ques Status: Previous Edition
36) Everything else held constant, when prices in the art market become more uncertain,
A) the demand curve for bonds shifts to the left and the interest rate rises.
B) the demand curve for bonds shifts to the left and the interest rate falls.
C) the demand curve for bonds shifts to the right and the interest rate falls.
D) the supply curve for bonds shifts to the right and the interest rate falls.
Answer: C
Ques Status: Previous Edition
37) Everything else held constant, when real estate prices are expected to decrease
A) the demand curve for bonds shifts to the left and the interest rate rises.
B) the demand curve for bonds shifts to the left and the interest rate falls.
C) the demand curve for bonds shifts to the right and the interest rate falls.
D) the supply curve for bonds shifts to the right and the interest rate falls.
Answer: C
Ques Status: New
38) Everything else held constant, when the government has higher budget deficits
A) the demand curve for bonds shifts to the left and the interest rate rises.
B) the demand curve for bonds shifts to the left and the interest rate falls.
C) the supply curve for bonds shifts to the right and the interest rate falls.
D) the supply curve for bonds shifts to the right and the interest rate rises.
Answer: D
Ques Status: New

39) If stock prices are expected to climb next year, everything else held constant, the ________ curve
for bonds shifts ________ and the interest rate ________.
A) demand; left; rises
B) demand; right; rises
C) demand; left; falls
D) supply; left; rises
Answer: A
Ques Status: New
40) If prices in the bond market become more volatile, everything else held constant, the demand
curve for bonds shifts ________ and interest rates ________.
A) left; rise
B) left; fall
C) right; rise
D) right; fall
Answer: A
Ques Status: New
41) If brokerage commissions on stocks fall, everything else held constant, the demand for bonds
________, the price of bonds ________, and the interest rate ________.
A) decreases; decreases; increases
B) decreases; decreases; decreases
C) increases; decreases; increases
D) increases; increases; increases
Answer: A
Ques Status: New
42) If the expected return on bonds increases, all else equal, the demand for bonds increases, the
price of bonds ________, and the interest rate ________.
A) increases; decreases
B) increases; increases
C) decreases; decreases
D) decreases; increases
Answer: A
Ques Status: New


43) In the figure above, a factor that could cause the supply of bonds to shift to the right is:
A) a decrease in government budget deficits.
B) a decrease in expected inflation.
C) a recession.
D) a business cycle expansion.
Answer: D
Ques Status: Previous Edition
44) In the figure above, a factor that could cause the demand for bonds to decrease (shift to the left)
is:
A) an increase in the expected return on bonds relative to other assets.
B) a decrease in the expected return on bonds relative to other assets.
C) an increase in wealth.
D) a reduction in the riskiness of bonds relative to other assets.
Answer: B
Ques Status: Previous Edition
45) In the figure above, the price of bonds would fall from P1 to P2
A) inflation is expected to increase in the future.
B) interest rates are expected to fall in the future.
C) the expected return on bonds relative to other assets is expected to increase in the future.
D) the riskiness of bonds falls relative to other assets.
Answer: A
Ques Status: Previous Edition