CH5: Effect of Variable Change to Quantity Demanded

Question 1

When the variable wealth increases, the quantity of an asset demanded __________.

Answer 1

Increases

Question 2

When the variable wealth decreases, the quantity of an asset demanded __________.

Answer 2

Decreases

Question 3

When the expected return of stocks are higher than bonds, then the quantity demanded for stocks _______________.

Answer 3

Increases

Question 4

When the expected return of stocks are lower than bonds, then the quantity demanded for stocks _______________.

Answer 4

Decreases

Question 5

When the expected return of real estate is higher than saving accounts, then the quantity demanded for real estate _______________.

Answer 5

Increases

Question 6

When the expected return of real estate is lower than saving accounts, then the quantity demanded for real estate _______________.

Answer 6

Decreases

Question 7

When the risk of loss in stocks rises, then the quantity demanded for stocks ___________.

Answer 7

Decreases

Question 8

When the risk of loss in stock falls, then the quantity demanded for stocks _____________.

Answer 8

Increases

Question 9

If the liquidity of cash is greater than real estate, then the quantity demand for cash _________________.

Answer 9

Increases

Question 10

If real estate has more liquidity than carbon fuel credits, then the quantity demand for real estate _____________.

Answer 10

Increases

Question 11

What is the effect of the variable WEALTH on quantity of an asset demanded when it INCREASES?

Answer 11

The quantity of an asset demanded** INCREASES**.

Question 12

What is the effect of the variable WEALTH on quantity of an asset demanded when it DECREASES?

Answer 12

The quantity of an asset demanded** DECREASES**.

Question 13

What is the effect of the variable EXPECTED RETURN RELATIVE to Other Assets on quantity of an asset demanded when it INCREASES?

Answer 13

The quantity of an asset demanded** INCREASES**.

Question 14

What is the effect of the variable EXPECTED RETURN RELATIVE to Other Assets on quantity of an asset demanded when it DECREASES?

Answer 14

The quantity of an asset demanded** DECREASES**.

Question 15

What is the effect of the variable LIQUIDITY RELATIVE to Other Assets on quantity of an asset demanded when it INCREASES?

Answer 15

The quantity of an asset demanded** INCREASES**.

Question 16

What is the effect of the variable LIQUIDITY RELATIVE to Other Assets on quantity of an asset demanded when it DECREASES?

Answer 16

The quantity of an asset demanded** DECREASES**.

Question 17

What is the effect of the variable RISK RELATIVE to Other Assets on quantity of an asset demanded when it DECREASES?

Answer 17

The quantity of an asset demanded** INCREASES**.

Question 18

What is the effect of the variable RISK RELATIVE to Other Assets on quantity of an asset demanded when it INCREASES?

Answer 18

The quantity of an asset demanded** DECREASES**.

Question 19

What is the effect of the variable WEALTH on the quantity demand for bonds when it INCREASES?

Answer 19

The quantity demand for bonds** INCREASES**.

Question 20

What is the effect of the variable WEALTH on the quantity demand for bonds when it DECREASES?

Answer 20

The quantity demand for bonds** DECREASES**.

Question 21

What is the effect of the variable EXPECTED INTEREST RATE on the quantity demand for bonds when it DECREASES?

Answer 21

The quantity demand for bonds** INCREASES**.

Question 22

What is the effect of the variable EXPECTED INTEREST RATE on the quantity demand for bonds when it INCREASES?

Answer 22

The quantity demand for bonds** DECREASES**.

Question 23

What is the effect of the variable EXPECTED INFLATION on the quantity demand for bonds when it INCREASES?

Answer 23

The quantity demand for bonds** DECREASES**.

Question 24

What is the effect of the variable RISKINESS of BONDS on the quantity demand for bonds when it DECREASES?

Answer 24

The quantity demand for bonds** INCREASES**.

Question 25

What is the effect of the variable **RISKINESS of BONDS** on the quantity demand for bonds when it **INCREASES**?

Answer 25

The quantity demand for bonds** DECREASES**.

Question 26

What is the effect of the variable **LIQUIDITY of BONDS** on the quantity demand for bonds when it **INCREASES**?

Answer 26

The quantity demand for bonds** INCREASES**.

Question 27

What is the effect of the variable **LIQUIDITY of BONDS** on the quantity demand for bonds when it **DECREASES**?

Answer 27

The quantity demand for bonds** DECREASES**.

Question 28

What is the effect of the variable **PROFITABILITY of INVESTMENTS** on the quantity supplied of bonds when it **INCREASES**?

Answer 28

The quantity supplied for bonds** INCREASES**.

Question 29

What is the effect of the variable **PROFITABILITY of INVESTMENTS** on the quantity supplied of bonds when it **DECREASES**?

Answer 29

The quantity supplied of bonds** DECREASES**.

Question 30

What is the effect of the variable **EXPECTED INFLATION** on the quantity supplied of bonds when it **INCREASES**?

Answer 30

The quantity supplied of bonds** INCREASES**.

Question 31

What is the effect of the variable **EXPECTED INFLATION** on the quantity supplied of bonds when it **DECREASES**?

Answer 31

The quantity supplied of bonds** DECREASES**.

Question 32

What is the effect of the variable **GOVERNMENT DEFICIT** on the quantity supplied of bonds when it **INCREASES**?

Answer 32

The quantity supplied of bonds** INCREASES**.

Question 33

What is the effect of the variable **GOVERNMENT DEFICIT** on the quantity supplied of bonds when it **DECREASES**?

Answer 33

The quantity supplied of bonds** DECREASES**.

Question 34

What is the effect of the variable **INCOME** on the demand for MONEY and INTEREST RATE when it **INCREASES**?

Answer 34

The demand for money **INCREASES** and the interest rate ** INCREASES**.

Question 35

What is the effect of the variable **INCOME** on the demand for MONEY and INTEREST RATE when it **DECREASES**?

Answer 35

The demand for money **DECREASES** and the interest rate ** DECREASES**.

Question 36

What is the effect of the variable **PRICE LEVEL** on the demand for MONEY and INTEREST RATE when it **INCREASES**?

Answer 36

The demand for money **INCREASES** and the interest rate ** INCREASES**.

Question 37

What is the effect of the variable **PRICE LEVEL** on the demand for MONEY and INTEREST RATE when it **DECREASES**?

Answer 37

The demand for money **DECREASES** and the interest rate ** DECREASES**.

Question 38

What is the effect of the variable **MONEY SUPPLY** on the supply for MONEY and INTEREST RATE when it **INCREASES**?

Answer 38

The supply for money **INCREASES** and the interest rate ** DECREASES**.

Question 39

What is the effect of the variable **MONEY SUPPLY** on the supply for MONEY and INTEREST RATE when it **DECREASES**?

Answer 39

The supply for money **DECREASES** and the interest rate ** INCREASES**.

Question 40

The **price-level effect** predicts what?

Answer 40

Price level effect predicts an increase in the money supply leads to a rise in interest rates in response to the rise in the price level.

Question 41

The **expected-inflation effect** shows what?

Answer 41

**Expected inflation effect** shows an increase in interest rates because an increase in the money supply may lead people to expect a higher price level in the future

Question 42

The **liquidity effect** shows what?

Answer 42

The **liquidity effect** based on the liquidity preference framework leads to the conclusion that an increase in the money supply will lower interest rates.

Question 43

The **income effect** finds what?

Answer 43

The **income effect** finds interest rates rising because increasing the money supply has an expansionary influence on the economy.

Question 44

When does **market equilibrium** occur?

Answer 44

A **market equilibrium** occurs when the amount that people are willing to buy (demand) equals the amount that people are willing to sell (supply) at a given price. Bd = Bs

Question 45

What does Bd > Bs mean in reference to the bond market?

Answer 45

There is excess demand in the bond market and therefore, price will rise and interest rate will fall.

Question 46

What does Bd < Bs mean in reference to the bond market?

Answer 46

There is excess supply in the bond market and therefore, price will fall and interest rate will rise.

Question 47

What does Bd = Bs mean in reference to the bond market?

Answer 47

Defines market equilibrium

Question 48

What is the relationship of interest rates and quatity demand in the Bond Market?

Answer 48

Interest rate and quantity demanded are positively related (higher interest rates increases the quantity demanded of bonds)

Question 49

What is the relationship of interest rates and quatity supplied in the Bond Market?

Answer 49

Interest rate and quantity demanded are negatively related (higher interest rates decreases the quantity of supplied bonds)