QUESTION-1: 10 TOTAL MARKS: 70 Factors listed below are the shift factors for De
ID: 1103536 • Letter: Q
Question
QUESTION-1: 10 TOTAL MARKS: 70 Factors listed below are the shift factors for Demand and Supply of Bonds. Circle the appropriate answers of your choice to show whether Demand (D) or Supply (S) shifts. Also circle the shift factor whether causes shift to Left (L) or Right (R) 1. Wealth decreases. (D S) (L IR) 2. The expected returns on bonds relative to other assets increases.( D IS L IR) 3. The expected inflation rate increases. DIS)(LIR) . The expected profitability of physical capital investments decreases.( DIS LIR) 5. Business taxes decrease. ( DS)(LTR) 6. Expected inflation decreases. (D S) (L IR) 7. Government borrowing increases. D I S)(LIR) 8. The risk on bonds relative to other assets decreases. D S)(LIR) 9. The liquidity of bonds relative to other assets decreases. D S)(LIR) 10. The cost of obtaining information on bonds relative to the cost of obtaining information on other assets increases. (D S)(L IR)Explanation / Answer
1.
1. D, L
There will be leftward shift in the demand and demand will come down.
2. D, R
There will be rightward shift in the demand and demand will increase.
3. S, R
Supply will increase with rightward shift as issuers will borrow more funds using bonds.
4. D, R
There will be rightward shift in the demand and demand will increase as bonds will become the attractive avenue of investment.
5. D, R
There will be rightward shift in the demand and demand will increase as people have more disposable income for investment.
6. S, R
Supply will decrease with leftward shift as issuers will less borrow the funds using bonds.
7. D, L
There will be leftward shift in the demand and demand will come down. People will opt to invest more in government securities.
8.
D, R
There will be rightward shift in the demand and demand will increase.
9.
D, L
There will be leftward shift in the demand and demand will come down. People will not prefer investments of bonds with less liquidity.
10.
D, L
There will be leftward shift in the demand and demand will come down as cost of investment in bonds will increase.
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