Question

14. 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 15. 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 16. 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 17. 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 18. 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 19. 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 1

14) Correct Answer is Option A

Increase in wealth will lead to increase in demand for both Stock and long-term bonds

Stocks refer risky investments while long-term bonds refer risk-free investments

Increase in wealth will lead to increase in demand for both risky and risk-free investments