If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ________ and that of Treasury bills will ________.

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 assetʹs 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
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
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 ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls
Answer: C
Ques Status: Previous Edition

11) 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
B) rises; falls
C) falls; rises
D) falls; falls
Answer: D
Ques Status: Previous Edition
12) An increase in the expected rate of inflation will ________ the expected return on bonds relative
to the that on ________ assets, everything else held constant.
A) reduce; financial
B) reduce; real
C) raise; financial
D) raise; real
Answer: B
Ques Status: Previous Edition
13) If fluctuations in interest rates become smaller, then, other things equal, the demand for stocks
________ and the demand for long-term bonds ________.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
Answer: D
Ques Status: Previous Edition
14) If the price of gold becomes less volatile, then, other things equal, the demand for stocks will
________ and the demand for antiques will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer: C
Ques Status: Previous Edition
15) If brokerage commissions on bond sales decrease, then, other things equal, the demand for
bonds will ________ and the demand for real estate will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer: B
Ques Status: Previous Edition

16) If gold becomes acceptable as a medium of exchange, the demand for gold will ________ and
the demand for bonds will ________, everything else held constant.
A) decrease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease
Answer: D
Ques Status: Previous Edition
17) The demand for Picasso paintings rises (holding everything else equal) when
A) stocks become easier to sell.
B) people expect a boom in real estate prices.
C) Treasury securities become riskier.
D) people expect gold prices to rise.
Answer: C
Ques Status: Revised
18) The demand for silver decreases, other things equal, when
A) the gold market is expected to boom.
B) the market for silver becomes more liquid.
C) wealth grows rapidly.
D) interest rates are expected to rise.
Answer: A
Ques Status: Revised
19) You would be less willing to purchase U.S. Treasury bonds, other things equal, if
A) you inherit $1 million from your Uncle Harry.
B) you expect interest rates to fall.
C) gold becomes more liquid.
D) stock prices are expected to fall.
Answer: C
Ques Status: Revised
20) You would be more willing to buy AT&T bonds (holding everything else constant) if
A) the brokerage commissions on bond sales become cheaper.
B) interest rates are expected to rise.
C) your wealth has decreased.
D) you expect diamonds to appreciate in value.
Answer: A
Ques Status: Revised
21) The demand for gold increases, other things equal, when
A) the market for silver becomes more liquid.
B) interest rates are expected to rise.
C) interest rates are expected to fall.
D) real estate prices are expected to increase.
Answer: B
Ques Status: Revised

22) Holding everything else constant,
A) if asset Aʹs risk rises relative to that of alternative assets, the demand will increase for asset
A.
B) the more liquid is asset A, relative to alternative assets, the greater will be the demand for
asset A.
C) the lower the expected return to asset A relative to alternative assets, the greater will be
the demand for asset A.
D) if wealth increases, demand for asset A increases and demand for alternative assets
decreases.
Answer: B
Ques Status: Previous Edition
23) Holding all other factors constant, the quantity demanded of an asset is
A) positively related to wealth.
B) negatively related to its expected return relative to alternative assets.
C) positively related to the risk of its returns relative to alternative assets.
D) negatively related to its liquidity relative to alternative assets.
Answer: A
Ques Status: New
24) Everything else held constant, would an increase in volatility of stock prices have any impact on the demand for rare coins? Why or why not?
Answer: Yes, it would cause the demand for rare coins to increase. The increased volatility of
stock prices means that there is relatively more risk in owning stock than there was
previously and so the demand for an alternative asset, rare coins, would increase.
Ques Status: Previous Edition