Chapter 6 Money and Banking

Mar 8, 2013 432 Words  2 Pages

Tutorial Answers: Chapter 5

2. (a) More, because your wealth has increased; (b) more, because the house has become more liquid; (c) less, because its expected return has fallen relative to Microsoft stock; (d) more, because it has become less risky relative to stocks; (e) less, because its expected return has fallen.

7. In the loanable funds framework, when the economy booms, the demand for bonds increases. The public’s income and wealth rises while the supply of bonds also increases, because firms have more attractive investment opportunities. Both the supply and demand curves (Bd and Bs) shift to the right,