Figure 15-1
-Refer to Figure 15-1. What will happen if the current interest rate is 2 percent?
A) People will buy more bonds, which drives interest rates down.
B) People will sell more bonds, which drives interest rates up.
C) People will buy more bonds, which drives interest rates up.
D) People will sell more bonds, which drives the interest rates down.

Question

Figure 15-1 
-Refer to Figure 15-1. What will happen if the current interest rate is 2 percent?
A) People will buy more bonds, which drives interest rates down. 
B) People will sell more bonds, which drives interest rates up. 
C) People will buy more bonds, which drives interest rates up. 
D) People will sell more bonds, which drives the interest rates down.

Quizplus · Accepted Answer

When the current interest rate is lower than the equilibrium interest rate, people will sell their bonds to seek higher returns elsewhere. This selling pressure on bonds causes their prices to fall and yields (interest rates) to rise until equilibrium is restored.

Figure 15-1 -Refer to Figure 15-1. What Will Happen If the Current