Question

In: Economics

When there is an excess demand for money, households will _____ interest-bearing bonds, causing interest rates...

When there is an excess demand for money, households will _____ interest-bearing bonds, causing interest rates to _____.

Solutions

Expert Solution

When there is an excess demand for money , households will sell interest - bearing bonds , causing interst rates to rise.

When there is excess demand for money , households will try to fulfill this money demand by selling bonds , this causes price of bonds to fall as there is less demand for bonds in the market . As price of bonds fall , interest rates rises because price of bonds and interest rates are inversely related .

Rahul Sunny answered 1 year ago
Next > < Previous

Related Solutions

When the interest rate is below the equilibrium interest rate, there is an excess ________ money and the interest rate will ________.
When the interest rate is below the equilibrium interest rate, there is an excess ________ money and the interest rate will ________.A) demand for; fallB) supply of; fallC) demand for; riseD) supply of; rise
"When demand for the bonds rises, which translates into lower interest rates on them, banks can...
"When demand for the bonds rises, which translates into lower interest rates on them, banks can offer homeowners lower interest rates on their underlying mortgages." Source: Nathaniel Popper, "Fed Action Spurs Broad Rally," New York Times , September 13, 2012. Increased demand for mortgage-backed bonds should ?(increase OR decrease) the interest rates on the bonds because the increased demand will ?(lower OR raise) the price of the bonds. Since bond prices and interest rates are ?(positively inversely) related, higher bond...
Explain the following economic relationships: interest rates and stock prices; money supply and excess liquidity and...
Explain the following economic relationships: interest rates and stock prices; money supply and excess liquidity and stock price; government budget deficit and interest rates; government budget deficit and stock price; $ and trade balance; US versus foreign interest rates and the $; demographics and agin and stock prices.
If there is an excess demand for bonds, is the price of bonds above or below...
If there is an excess demand for bonds, is the price of bonds above or below the equilibrium price? Explain the price adjustment in equilibrium.
13. An increase in nominal GDP increases the demand for money because: a. interest rates will...
13. An increase in nominal GDP increases the demand for money because: a. interest rates will rise b. bond prices will fall c. the opportunity cost of holding money will decline d. more money is needed to finance more transactions 14. Which of the following would reduce the money supply?: a. Commercial banks use excess reserves to buy government bonds from the public b. Commercial banks loan out excess reserves c. Commercial banks sell government bonds to the public d....
When interest rates rise firms want to borrow less for new plants and equipment and households...
When interest rates rise firms want to borrow less for new plants and equipment and households want to borrow more for home-building. Select one: True False The sticky wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, real wages fall because nominal wages are increasing at a slower rate than the price level. Select one: True False Suppose the economy is in long-run equilibrium. If there is an increase in consumer...
When the supply and demand for money are expressed in a graph with the interest rate...
When the supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the price level none of these answers shifts money demand to the right and increases the interest rate. shifts money demand to the right and decreases the interest rate. shifts money demand to the left and increases the interest rate. A multiple-choice question with one possible answer.(Required) If...
Money Market             Why do people demand to hold money?             How do interest rates affect...
Money Market             Why do people demand to hold money?             How do interest rates affect demand? Know how the chain of events works when the Fed decides to affect market outcomes. Fed Action à MS changes à Interest rate changes à Investment changes àAD changes à Prices/Output changes How much of an effect does a change in interest rates have on aggregate demand. What are some of the constraints on monetary policy?             Relate to the Great Depression.                        ...
Monitoring the Cost Of Money: Interest Rates Interest rates, the cost of money, influence most all...
Monitoring the Cost Of Money: Interest Rates Interest rates, the cost of money, influence most all factors related to personal and corporate capital budgeting. The more obvious personal information for the cost of money is the rates associated with a mortgage or car loan. As a CFO you would “shop” interest rates to find the best rate for your financing needs. 1. Would you, as the CFO, finance your projects as soon as possible if the cost of capital was...
Monitoring the Cost Of Money: Interest Rates Interest rates, the cost of money, influence most all...
Monitoring the Cost Of Money: Interest Rates Interest rates, the cost of money, influence most all factors related to personal and corporate capital budgeting. The more obvious personal information for the cost of money is the rates associated with a mortgage or car loan. As a CFO you would “shop” interest rates to find the best rate for your financing needs. 1. Would you, as the CFO, finance your projects as soon as possible if the cost of capital was...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT