If the Demand Increases but Supply Decreases, Then

question 11

Multiple Choice

If the demand increases but supply decreases, then:

• A) these two effects cancel each other out and there is no change in the market equilibrium.
• B) the price will increase and the quantity will depend on the magnitude of shifts of both demand and supply curves.
• C) the price will increase and the quantity will decrease.
• D) the price will increase and the quantity will increase.
• E) the price will decrease and the quantity will depend on the magnitude of shifts.

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Definitions:

Interest Rates

The cost of borrowing money or the return on invested capital, expressed as a percentage rate over a period of time, typically one year.

Zero-Coupon Bond

A bond that does not pay periodic interest but is issued at a discount from its face value, and its return comes from the difference between the purchase price and the face value paid at maturity.

Investment Horizon

Investment Horizon denotes the period an investor expects to hold an investment before taking any return out of it.

Interest Rate Risk

The risk that the value of an investment will decrease due to a rise in interest rates, affecting especially interest-bearing assets like bonds.