Question

30. If there is an excess demand for money using the liquidity preference theory) A. Individual sell bonds causing interest rates to fall B. Individuals sell bonds causing interest rates to rise C. Individuals buy bond causing interest rates to fall D. Individuals buy bonds causing interest rates to rise 31. If the money demand curve shifts to the left. Interest rates ----and bond prices A. Fall; rise B. Fall; fall C. Rise; rise D. Rise;fall 32. When the growth rate of money supply increases, interest rates will be permanently lower if A. The liquidity effect is more than the other effects B. There is a fast adjustment to expected inflation C. There is a slow adjustment to expected inflation D. Either B or C may be correct Chapter 6- The risk and term structure of interest rates Assume corporate bonds and government bonds are competitive) 33 The risk structure of interest rates is A. The structure of how interest rates move over time B. The relationship among interest rates of bonds with the same maturity C. The relationship among the term to maturity of different bonds D. The relationship of interest rates on bonds with different maturities 34 Other things being equal, an increase in the default risk of corporate bonds shifts the demand curve for corporate bonds to the ----- and the demand curve for Treasury bonds to the A. Right; right B. Right; left C. Left; right D. left; left 35 According to the segmented market theory of the term structure of interest rates, if bondholders prefer short-term bonds to long-term bonds, the yield curve would be A. Flat B. Upward sloping C. Downward sloping D. Vertical 36. When yield curves are steeply dowmward sloping A. Long term rates are above short term rates B. Short term rates are above long term rates C. Short term rates are about the same as long term rates D. Medium term rates are above both short term and long term rates

Answer 1

30. b) individuals sell bonds causing interest rates to rise

31. a) Fall; rise

32. a) The liquidity effect is more than other effects

33. d) The relationship of interest rates on bonds with different maturity

34.c) Left; right

35. c) downward sloping

36. b) Short term rates are above long term rates