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c.  an increase in government deficits.

d.  all of the above.

e.  only (a) and (b) of the above.

36. The demand curve for bonds has the usual downward slope, indicating that at _____ prices of the bond, everything else equal, the _____ is higher.

a.  higher, demand

b.  higher, quantity demanded

c.  lower, demand

d.  lower, quantity demanded

37. As the price of a bond falls and the expected return _____, bonds become _____ attractive to investors.

a.  falls, less

b.  falls, more

c. rises, less

d.  rises, more

38. When the inflation rate is expected to increase, the real cost of borrowing declines at any given interest rate; the supply of bonds _____ increases and the supply curve shifts to the _____.

a.  increases, left

b.  increases, right

c.  decreases, left

d.  decreases, right

39.  When the inflation rate is expected to increase, the expected return on bonds relative to real assets falls for any given interest rate; the _____ for bonds falls and the _____ curve shifts to the left.

a.  demand, demand

b.  demand, supply

c.  supply, demand

d.  supply, supply

Figure 6-1

40.  In Figure 6-1, the most likely cause of the increase in the equilibrium interest rate from i1 to i2 is

a.  an increase in the price of bonds.

b.  a decline in the price of bonds.

c.  an increase in the expected inflation rate.

d.  a decrease in the expected inflation rate.

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