A decrease in the rate of return on stocks. All the above. In the money market model, a decrease in the money supply will cause a. an increase in the nominal interest rate in the short-run. In the money market model, an increase in the price level, holding everything else constant, will likely cause the nominal interest rate to rise. True b. False Chapter 7 Questions 10.
Yield curves are generally flat.
The higher the interest rate on short-term bonds, the steeper the yield curve. The expectations hypothesis cannot explain a. It can explain all the above. If one expects future short-term interest rates to fall, the the yield curve will a. shift up. Assuming interest rate risk is unchanged, if the yield curve becomes flatter it would be wise to buy bonds now.