Figure 15-1
-Refer to Figure 15-1. What will happen if the current interest rate is 4 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 4 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 4 percent, people will be interested in buying more bonds since the existing bonds will have a lower yield than the new ones offered at 4 percent. This increase in demand for bonds will drive the prices up, and the yields (interest rates) down. Therefore, the correct option is A, which states that people will buy more bonds, which drives interest rates down.

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