Suppose that at a given interest rate and money supply,all firms and households simultaneously try to reduce their money balances.They do this by trying to ________,which causes an excess ________,which causes a(n)________,and finally a(n)________ in the interest rate.

Question

Quizplus · Accepted Answer

If all firms and households try to reduce their money balances, they will buy bonds, which will increase the demand for bonds. This will cause an increase in the price of bonds, and a decrease in the interest rate. Therefore, the best choice is option D - buy bonds, demand for bonds, increase in the price of bonds, and decrease in the interest rate.

Suppose That at a Given Interest Rate and Money Supply,all