Part A

Why are some interest rates higher than others?

a High interest rates are charged to people who can afford to pay them.

b High interest rates are charged for the highest quality loans.

c The riskiest loans usually pay the highest interest rates.

d High-interest rates are charged for larger loans for the same reason that large houses typically sell at a higher price.

Part b

Which of the following is true about bonds?

a The higher the interest rate, the higher a bond's price.

b Longer-maturity bonds make more coupon payments and they tend to have higher prices.

c Bonds with higher coupon payments always sell at higher prices.

d When interest rates rise, a bond's price falls.

Part c

If real GDP rises, what happens to the demand for money?

a The demand for money shifts right.

b The demand for money shifts left.

c The demand for money remains unaffected.

d A change in GDP causes movement along the demand for money curve.