ECO 316 Week 2 Quiz - All Questions Answered Correctly - Best Tutorial

Question 1.The bond supply curve slopes up because

interest rates rise as bond prices rise.
when bond prices are high, inflation is high.
the lender is willing and able to offer more bonds when the price of the bond is low.
the borrower is willing and able to offer more bonds when the price of the bond is high.

Question 2.The formula for the yield to maturity, i, on a discount bond is

i = (Face value - Discount price)/Discount price.
i = (Discount price - Face value)/Discount price.
i = (Face value - Discount price)/Face value.
i = (Discount price - Face value)/Face value.

Question 3.Other things equal, an increase in the tax on dividends is likely to result in all of the following EXCEPT:

higher expected return on bonds relative to stocks
increased demand for bonds
lower interest rates
higher interest rates

Question 4.The Federal Reserve issues a report indicating that future inflation will be higher than had previously seemed likely. As a result

the supply curve for bonds shifts to the right.
the demand curve for loanable funds shifts to the left.
the equilibrium interest rate falls.
the equilibrium price of bonds rises.

Question 5.Suppose that a new bond rating service is established that specializes in rating municipal bonds that had not previously been rated. The likely result would be

a shift to the left in the demand curve for municipal bonds.
a shift to the left in the supply curve for municipal bonds.
an increase in the equilibrium interest rate.
a decrease in the equilibrium interest rate.

Question 6.If expected inflation declines by 2%, what should happen to nominal interest rates according to the Fisher effect?

rise by 2%
fall by 2%
be cut in half
double in size

Question 7.If the government increases taxes while holding expenditures constant,

the bond supply curve will shift to the left and the equilibrium interest rate will fall.
the bond supply curve will shift to the right and the real interest rate will fall.
government borrowing will be increased.
the government's deficit will increase.

Question 8.A decrease in expected inflation

usually leads to falling nominal interest rates.
results in increased nominal capital gains on physical assets.
will shift the bond demand curve to the left.
will shift the supply curve for loanable funds to the left.

Question 9.If there is an excess demand for bonds at a given price of bonds, then

the interest rate will fall.
the interest rate will rise.
the price of bonds will fall.
the interest rate may rise or the interest rate may fall depending upon the reasons for the excess demand for bonds.

Question 10.Which of the following would NOT cause the demand curve for bonds to shift?