4. Based on the Theory of Portfolio Choice (Asset Demand), tell whether investors would be more or less willing to buy corporate bonds in each of the following situations. Briefly explain each answer.

a) The riskiness of purchasing bonds has decreased relative to alternative investment opportunities.

b) The returns from purchasing corporate bonds have been significantly lower than returns on other types of investments.

b) Consumer wealth increases.

5. For each of the following situations, (holding everything else constant), tell (1) whether the demand curve for bonds or the supply curve for bonds shifts, (2) whether this curve shifts right or left, and (3) whether this causes the equilibrium interest rate to rise or fall.

a) The government increases spending, and as a result, the budget deficit increases.

b) Bonds become more risky.

c) Income and wealth in the economy rises.

6. For each of the following situations (holding everything else constant), tell (1) whether the demand curve for money or the supply curve for money shifts, (2) whether this curve shifts right or left, and (3) whether this causes the equilibrium interest rate to rise or fall.

a) The Federal Reserve increases the money supply.

b) The price level in the economy falls.

b) Incomes in the economy rise.