Financial Markets and Institutions, 7e (Mishkin) Chapter 4 Why Do Interest Rates Change
Multiple Choice
1) As the price of a bond ________ and the expected return ________, bonds become more attractive to investors and the quantity demanded rises. A) falls; rises B) falls; falls C) rises; rises D) rises; falls Answer: A
2) The supply curve for bonds has the usual upward slope, indicating that as the price ________, ceteris paribus, the ________ increases. A) falls; supply
B) falls; quantity supplied C) rises; supply
D) rises; quantity supplied Answer: D
3) When the price of a bond is above the equilibrium price, there is excess ________ in the bond market and the price will ________. A) demand; rise B) demand; fall C) supply; fall D) supply; rise Answer: C
4) When the price of a bond is below the equilibrium price, there is excess ________ in the bond market and the price will ________. A) demand; rise B) demand; fall C) supply; fall D) supply; rise Answer: A
5) When the price of a bond is ________ the equilibrium price, there is an excess supply of bonds and the price will ________. A) above; rise B) above; fall C) below; fall D) below; rise Answer: B
6) When the price of a bond is ________ the equilibrium price, there is an excess demand for bonds and the price will ________. A) above; rise B) above; fall C) below; fall D) below; rise Answer: D
7) When the interest rate on a bond is above the equilibrium interest rate, there is excess ________ in the bond market and the interest rate will ________.
A) demand; rise B) demand; fall C) supply; fall D) supply; rise Answer: B
8) When the interest rate on a bond is below the equilibrium interest rate, there is excess ________ in the bond market and the interest rate will ________. A) demand; rise B) demand; fall C) supply; fall D) supply; rise Answer: D
9) When the interest rate on a bond is ________ the equilibrium interest rate, there is excess ________ in the bond market and the interest rate will ________. A) above; demand; fall B) above; demand; rise C) below; supply; fall D) above; supply; rise Answer: A
10) When the interest rate on a bond is ________ the equilibrium interest rate, there is excess ________ in the bond market and the interest rate will ________. A) below; demand; rise B) below; demand; fall C) below; supply; rise
D) above; supply; fall Answer: C
11) When the demand for bonds ________ or the supply of bonds ________, interest rates rise.
A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases Answer: D
12) When the demand for bonds ________ or the supply of bonds ________, interest rates fall.
A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases Answer: B
13) When the demand for bonds ________ or the supply of bonds ________, bond prices rise. A) increases; decreases B) decreases; increases C) decreases; decreases D) increases; increases Answer: A
14) When the demand for bonds ________ or the supply of bonds ________, bond prices fall. A) increases; increases B) increases; decreases C) decreases; decreases
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