Multiple Choice
FIGURE 27-2
-Refer to Figure 27-2. If the interest rate is i2, the subsequent adjustment in the money market is as follows:
A) excess demand for money leads to a sale of bonds, which in turn causes the interest rate to rise.
B) MS curve will shift to the left as to maintain the interest rate at i2.
C) the interest rate will remain at i2, because the money market is in equilibrium at this interest rate.
D) excess supply of money leads to the purchase of bonds, which in turn causes the interest rate to fall to i 0.
E) excess supply of money leads to the sale of bonds, which in turn causes the interest rate to fall.
Correct Answer:
Verified
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