Question

1. a rise in government borrowing

	shifts the bond demand curve to the right
	raises the equilibrium price of bonds
	raises the equilibrium rate of interest
	Shifts the bond supply curve to the left

2. a rise in the supply of bonds

	increases the equilibrium price of bonds and lowers equilibrium interest rates
	lowers the equilibrium price of bonds and lowers equilibrium interest rates
	lowers the equilibrium price of bonds and raises equilibrium interest rates
	none of the answers are correct

3. you are trying to forecast the future stock price of Google's common stock. If to do you are using all available information, you are exhibiting,

	adaptive expectations.
	rational expectations.
	neither adaptive nor rational expectations
	none of the answers are correct

4. when demand for bonds rise

	the equilibrium price of bonds falls
	the market price of bonds is not affected
	the equilibrium price of bonds rises
	none of the answers listed are correct

Answer 1

1. Answer is raises the equilibrium rate of interest.

The reason for choosing this option is that the increase in government borrowing reduces the supply of loanable fund by that particular amount at each interest rate which leads to the shift of the new supply curve to the left of old supply curve. Due to the shift of the supply curve, the equilibrium interest rate rises.

2.Answer is lowers the equilibrium price of bonds and raises equilibrium interest rates

The reason is that when the supply of bond increases, shifts the supply curve to the right. As a results it lowers the equilibrium price and raise the equilibrium interest rates.

3.Answer is rational expectations.

Rational expectation is related to how individuals make decisions based on the available information and past trends. As in the above case we need to forecast the future price of Google's common stock based on the information available. On contrary, adaptive expections are purely based on the past trends.

4.Answer is the equilibrium prices of the bond rises

When the demand of the bond increases it's prices also increases due to limited supply of bonds. As a reult interest rates fall.