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© 2014 Pearson Canada Inc.#
A decrease in the brokerage commissions in the housing market from 6 percent to 5 percent
of the sales price will shift the ____ curve for bonds to the ____, everything else held
constant.
A) demand; right
B) demand; left
C) supply; right
D) supply; left
Answer: B
Diff: 1 Type: MC Page Ref: 97
Skill: Applied
Objective List: 5.3 Outline the factors that cause interest rates to change
In the 1990s Japan had the lowest interest rates in the world due to a combination of
____.
A) inflation and recession
B) deflation and expansion
C) inflation and expansion
D) deflation and recession
Answer: D
Diff: 1 Type: MC Page Ref: 98
Skill: Applied
Objective List: 5.3 Outline the factors that cause interest rates to change
What is the impact on interest rates when the Bank of Canada decreases the money supply by
selling bonds to the public?
Answer: Bond supply increases and the bond supply curve shifts to the right. The new
equilibrium bond price is lower and thus interest rates will increase.
Diff: 1 Type: SA Page Ref: 95
Skill: Applied
Objective List: 5.3 Outline the factors that cause interest rates to change
Use demand and supply analysis to explain why an expectation of interest rate hikes would
cause Government bond prices to fall.
Answer: The expected return on bonds would decrease relative to other assets resulting in a
decrease in the demand for bonds. The leftward shift of the bond demand curve results in a new
lower equilibrium price for bonds.
Diff: 1 Type: SA Page Ref: 92
Skill: Applied
Objective List: 5.3 Outline the factors that cause interest rates to change