If the interest rate falls bond prices rise. O True O False

An increase in the money demand, with money supply held constant, means that we will observe O a. A higher level of GDP O b. A rise in the price of bonds O c. A rise in interest rates O d. All of the answers are correct

5.    Economists continue to be puzzled by the appar- ent home bias of investors across countries. With mean-variance preferences, investors ought to allo- cate much more of their wealth to foreign equities and bonds. Three explanations for the phenomenon are given below, all of them based on empirical facts. For each one, discuss whether the statements are true or false and in what sense they help, or fail, to rationalize the home bias puzzle. In answering the questions, assume that investors have mean- variance preferences. a.     Investors should not hold foreign equities be- cause they are more volatile and have been yielding lower returns than U.S. stocks in re- cent years. b.     Home bias arises because investors face an ad- ditional risk when investing internationally— namely, currency risk. Because currency risk makes returns more volatile but does not lead to a higher expected return, investing more in domestic…

Use the figure below to answer the following questions. Interest rate 0 MD₂ MD₂, MD, Real money (billions of 2002 dollars) Select one: O A A movement from A to F O B. A movement from A to C OC. A movement from A to E O D. A movement from A to B O E. A movement from E to A Figure 24.5.2 Refer to Figure 24.5.2. Which one of the following best describes the response to a decrease in the market price of bonds?