If People Expect Nominal Interest Rates to Be Lower in the Future

question 73

Multiple Choice

If people expect nominal interest rates to be lower in the future, the expected return on bonds ________, and the demand for money ________.

• A) increases; increases
• B) increases; decreases
• C) decreases; increases
• D) decreases; decreases

---

Definitions:

Budget Line

A visual depiction of every possible pair of two products that can be bought given specific income levels and product prices.

Stock Market

A marketplace where stocks, bonds, and other securities are bought and sold.

Borrow Money

The act of obtaining funds from another party with the promise of repaying the principal amount along with potential interest.

Buy Stocks on Margin

The practice of borrowing money from a broker to purchase stock, using the bought securities as collateral for the loan.