If bonds and stocks are considered to be substitute goods, and the investors expect stock prices to drop in the near future, _____
a. the price of bonds will also decline
b. the supply of bonds will increase
c. the interest rate on bonds will decline
d. the demand for stocks will increase
e. the demand for bonds will decline
c
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Product differentiation and internal economies of scale yield gains from trade in the form of
A) lower production costs and a greater variety of goods. B) higher profits and lower trade costs. C) the proximity-concentration effect. D) a proliferation of competitive firms. E) the substitution of immigration for foreign direct investment.
If the Federal Reserve increases its bond purchases, the short-run effects will be
a. an increase in the money supply and lower real interest rates. b. a decrease in the money supply and lower real interest rates. c. an increase in the money supply and higher real interest rates. d. a decrease in the money supply and higher real interest rates.
Specialization and trade are closely linked to
a. absolute advantage. b. comparative advantage. c. gains to some traders that exactly offset losses to other traders. d. shrinkage of the economic pie.
Suppose that in a market for used cars, there are good used cars and bad used cars (lemons). Consumers are willing to pay as much as $9,000 for a good used car but only $3,000 for a lemon. Sellers of good used cars value their cars at $7,500 each and
sellers of lemons value their cars at $1,500 each. Buyers cannot tell if a used car is reliable or is a lemon. Based on this information, what is the likely outcome in the market for used cars? A) Sellers of good used cars will drop out of the market. B) Sellers of good used cars will incur losses. C) Sellers of lemons will drop out of the market. D) Used cars will sell for $6,000.