-In the above figure, if the interest rate is 8 percent,
A) people sell bonds so as to convert them into money.
B) the Fed increases the quantity of money.
C) people buy bonds and the interest rate falls.
D) people buy stocks, because stocks are more liquid than currency.

Question

-In the above figure, if the interest rate is 8 percent,
A) people sell bonds so as to convert them into money. 
B) the Fed increases the quantity of money. 
C) people buy bonds and the interest rate falls. 
D) people buy stocks, because stocks are more liquid than currency.

Quizplus · Accepted Answer

When the interest rate rises, people buy bonds because they can now earn a higher return on their investment. This increased demand for bonds drives up the price of bonds, which in turn lowers the interest rate.

-In the Above Figure, If the Interest Rate Is 8