Economics 311

Money and Banking

Quiz 2- The Determination of Interest Rates

Fall 2010

Bond Market (Demand)1. Risk: increased of Greek bonds

increases demand for U.S. govt. bonds. 2. Liquidity: reduced liquidity of Greek

bonds increases relative liquidity of and demand for U.S. bonds.

3. Wealth and Expected Inflation : unclear.Bond Market (Supply)

4. Expected Profitability of Investments: fewer investment possibilities reduces supply of bonds.

5. Expected Inflation6. Budget Deficits

Demand for Money (U.S)1. Income Effect.2. Price Level Effect3. Expected Inflation Effect.