Podcast
Questions and Answers
What happens to the quantity demanded of an asset when an individual's wealth increases, keeping everything else constant?
What happens to the quantity demanded of an asset when an individual's wealth increases, keeping everything else constant?
- It cannot be determined.
- It decreases significantly.
- It remains unchanged.
- It increases. (correct)
How does an increase in the expected return of an asset affect its quantity demanded, while other factors are held constant?
How does an increase in the expected return of an asset affect its quantity demanded, while other factors are held constant?
- It increases the quantity demanded. (correct)
- It makes the asset less attractive.
- It decreases the quantity demanded.
- It has no effect on quantity demanded.
What effect does an increase in the risk of an asset have on its demand, assuming all else is constant?
What effect does an increase in the risk of an asset have on its demand, assuming all else is constant?
- The demand becomes highly variable.
- The quantity demanded will increase.
- The quantity demanded will fall. (correct)
- The quantity demanded will remain unchanged.
Which factor primarily describes how easily an asset can be converted into cash?
Which factor primarily describes how easily an asset can be converted into cash?
What is the primary influence on the desirability of an asset regarding its liquidity?
What is the primary influence on the desirability of an asset regarding its liquidity?
What happens to the demand for an asset if its liquidity decreases relative to other assets?
What happens to the demand for an asset if its liquidity decreases relative to other assets?
Which factor is most likely to decrease the demand for an asset?
Which factor is most likely to decrease the demand for an asset?
Holding all else constant, what effect does an increase in wealth have on asset demand?
Holding all else constant, what effect does an increase in wealth have on asset demand?
Which determinant of asset demand refers to the uncertainty associated with an asset's return?
Which determinant of asset demand refers to the uncertainty associated with an asset's return?
If an asset has a higher expected return compared to other assets, what is likely to happen?
If an asset has a higher expected return compared to other assets, what is likely to happen?
Which of the following is not considered an asset?
Which of the following is not considered an asset?
What determines how quickly an asset can be converted into cash?
What determines how quickly an asset can be converted into cash?
What occurs if the expected return on an asset is lower than its alternatives, assuming other factors are constant?
What occurs if the expected return on an asset is lower than its alternatives, assuming other factors are constant?
Study Notes
Asset Demand Determinants
- Assets are stores of value (e.g. money, bonds, stocks, real estate)
- Wealth - An increase in wealth leads to a higher demand for assets
- Expected Return - An asset's expected return (compared to alternatives) influences demand. Higher relative return increases demand.
- Risk - An asset's risk (compared to alternatives) is a crucial factor, higher risk leads to lower demand.
- Liquidity - An asset's ease of conversion to cash (compared to alternatives) affects demand. Higher liquidity leads to higher demand.
Asset Demand Determinants
- Wealth: An individual's total resources, including all assets. A higher wealth level generally increases the demand for assets.
- Expected Return: The anticipated return on an asset compared to other investment options. An asset with a higher expected return, relative to others, tends to be more desirable and increases its demand.
- Risk: The uncertainty associated with an asset's return. Higher risk, compared to other assets, usually decreases the demand for that asset.
- Liquidity: The ease and speed with which an asset can be converted into cash. Assets that are more liquid, relative to others, are considered more desirable and have a higher demand.
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Description
This quiz examines the key factors that influence the demand for various assets, including wealth, expected returns, risk, and liquidity. Understanding these determinants is essential for making informed investment decisions and managing financial portfolios effectively.
