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Econ Test #2 (5,6,7)
Econ Test #2
| Question | Answer |
|---|---|
| What are the determinants of an asset demand? | Wealth, Expected Returns, Risk, and Liquidity |
| As _______ increases, people demand more bonds. | wealth |
| If the ___________ on bonds rises compared to other assets, demand increases. | Expected Returns |
| If bonds become ____ compared to other assets, demand decreases. | Riskier |
| If bonds become more _____, demand increases. | Liquidity |
| When you graph a bond market graph, the ______ is on the X-axis. | Price of Bond |
| When you graph a bond market graph, the ____ is on the Y-axis. | Quantity of bonds |
| The relationship between a Bond Price and Interest Rates are ______. | Inverse |
| If there is excess demand for bonds, Bond prices _____ and interest rates _____ | rise, fall |
| If there is excess supply for bonds, bond prices ______ and interest rates ______ | fall, rise |
| What two lines are graphed on a bond market graph? | Supply and Demand |
| Wealth shifts the ____ curve. | demand |
| Expected Returns shifts the _____ curve. | demand |
| Risk shifts the ______ curve. | demand |
| Liquidity shifts the _____ curve. | demand |
| Expected profitability shifts the ____ curve. | supply |
| Expected inflation shifts the _____ curve. | supply |
| Government budget shifts the _____ curve. | supply |
| The first step in the 3-step analysis process on the bond price and interest rate is to identify whether ______ or _____ changes. | demand, supply |
| The second step in the 3-step analysis process on the bond price and interest rate is to determine the _______ of the shift. | direction |
| The third step in the 3-step analysis process on the bond price and interest rate is to find the new ______ price and interest rate. | equilibrium |
| The _______ ________ Theory is the interest rates are determined by the supply and demand for money. | Liquidity Preference |
| The _____ _____ Equilibrium is where the money equals the money demand | Money Market |
| When you graph a money market graph, the ____ is on the X-axis. | Interest |
| When you graph a money market graph, the ____ is on the Y-axis. | Money |
| The money ____ and the money ______ are graphed on the Money Market Graph. | supply, demand |
| Income shifts the money ____ curve. | demand |
| Price/expected inflation shifts the money ____ curve. | demand |
| Fed adjusting the money supply adjusts the money ______ curve. | supply |
| The first step of the 3-step analysis on the interest rate is to identify whether ________ ________ or _________ _________ changes. | money demand, money supply |
| The second step of the 3-step analysis on the interest rate is to determine the _______ of the shift. | direction |
| The third step of the 3-step analysis on the interest rate is to find the new ________ of the interest rate. | equilibrium |
| The money market affects the _______ _______, which influence the ______ market. | interest rates, bond |
| If wealth rises, the demand curve _____. | rises |
| If the expected bond returns rises, the demand curve_____. | rises |
| If the risk rises, the demand curve____. | falls |
| If the liquidity rises, the demand curve _____. | rises |
| If the expected profitability of Investment rises, the supply curve _____. | rises |
| If the expected inflation rises, the supply curve _____. | rises |
| If the government budget deficit increases, the supply curve _____. | rises |
| If there is excess demand of money, the interest rate _____. | rises |
| If there is excess supply of money, the interest rate____. | falls |
| If the income rises, the demand curve____. | rises |
| If the price level (inflation) rises, the demand curve____. | rises |
| If the Fed increases money supply, interest rate_____ and bond price______. | falls, rises |
| If the Fed decreases money supply, interest rate_____ and bond price_____. | rises, falls |
| The three factors affecting the risk structure of interest rates are_____ ________, _____, and ______ _____ | Default Risk, Liquidity, Tax Consideration |
| Higher Default Risk leads to ______ interest rates. | higher |
| More liquid bonds have _____ interest rates. | lower |
| Tax-exempt bonds have _______ interest rates. | lower |
| The extra interest required by investors for taking on risk is a ______. | Risk Premium |
| Increased risk makes the demand for bonds _____, prices________, and interest rates ______. | fall, fall, rise |
| Increased liquidity makes the demand for bonds ______, prices ______. and interest rates _______. | rise, rise, fall |
| Tax-exempt status makes the demand for bonds _______, prices ______, and interest rates ______. | rise, rise, fall |
| What are the three shapes a yield curve can make? | Upward-sloping, flat, downward-sloping |
| The _______ ________ are future short-term rates determine long-term rates. | Expectations Theory |
| The _______ ________ _________ are investors preferring bonds with shorter maturities that have less interest-rate risk. | Segmented Markets Theory |
| The ________ _______ ________ combines both theories to add a premium for longer-term bonds | Liquidity Premium Theory |
| If a yield curve is upward sloping, then the future interest rates will be ______. | higher |
| If a yield curve is flat, then the future interest rates will be ______. | stable |
| If a yield curve is downward sloping, then the future interest rates will be ______. | lower |
| On the One-Period model, the D1 is the | dividend paid at the end of year 1 |
| On the One-Period model, the P0 is the | current price of the stock |
| On the One-Period model, the P1 is the | sale price of the stock at the end of the first period |
| On the One-Period model, the Ke is the | the required return on investment of equity |
| On the Gordon Growth Model, the D1 is the | dividend for this year |
| On the Gordon Growth Model, the Ke is the | required return on an investment in equity |
| On the Gordon Growth Model, the D0 is the | the most recent dividend paid |
| On the Gordon Growth Model, the g is the | expected constant growth rate in dividends |
| According to the Gordon Growth model, if dividends rise, then the stock price _____. | rises |
| According to the Gordon Growth model, if the expected growth in dividends rise, then the stock price _______. | rises |
| According to the Gordon Growth model, if the Required Return (Risk) rises, then the stock price ______. | falls |
| The relationship between risk and required return is that if there is a _______ risk, there is a _______ required return, which _______ stock prices. | higher, higher, higher |
| The __________ _________ theory is when people base expectations on past data. | Adaptive Expectations |
| The ________ ________ theory is when people use all available information. | Rational Expectations |
| The implication of the ________ _______ ________ is that financial markets quickly and fully incorporate all available information into assets prices, making it difficult for investors to consistently outperform the market. | Efficient Market Theory |
Created by:
antons281
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