Use the following to answer questions .
Exhibit: The Bond Market
-(Exhibit: The Bond Market) Suppose the Fed takes action that shifts the demand curve from D to D′, as illustrated in Panel (a). What happens to the interest rate?
A) It will increase.
B) It will decrease.
C) It remains unchanged.
D) Short-term interest rates will decrease but long-term interest rates will increase.

Question

Use the following to answer questions .
Exhibit: The Bond Market 
-(Exhibit: The Bond Market) Suppose the Fed takes action that shifts the demand curve from D to D′, as illustrated in Panel (a). What happens to the interest rate?
A) It will increase. 
B) It will decrease. 
C) It remains unchanged. 
D) Short-term interest rates will decrease but long-term interest rates will increase.

Quizplus · Accepted Answer

An increase in demand for bonds will lead to a decrease in interest rates.

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