130 #
© 2014 Pearson Canada Inc.#- Demonstrate graphically and explain how increased profitability of investments and
increased deficits affect bond prices and interest rates.
Answer: As increased deficits and increased profitability of investment both increase the supply
of bonds, one graph showing this shift and the resulting fall in prices and increase in interest
rates is appropriate.
Diff: 3 Type: SA Page Ref: 93
Skill: Applied
Objective List: 5.3 Outline the factors that cause interest rates to change
5.4 Supply and Demand in the Market for Money: The Liquidity Preference Framework
In Keynes's liquidity preference framework, individuals are assumed to hold their wealth in
two forms: ____.
A) real assets and financial assets
B) stocks and bonds
C) money and bonds
D) money and gold
Answer: C
Diff: 1 Type: MC Page Ref: 99
Skill: Recall
Objective List: 5.4 Understand how equilibrium interest rates change
In Keynes's liquidity preference framework, ____.
A) the demand for bonds must equal the supply of money
B) the demand for money must equal the supply of bonds
C) an excess demand of bonds implies an excess demand for money
D) an excess supply of bonds implies an excess demand for money
Answer: D
Diff: 1 Type: MC Page Ref: 99
Skill: Applied
Objective List: 5.4 Understand how equilibrium interest rates change