Refer to the above market for money diagram.If the interest rate was at 3 percent, people would:
A)sell bonds, which would cause bond prices to fall and the interest rate to rise.
B)buy bonds, which would cause bond prices to fall and the interest rate to rise.
C)sell bonds, which would cause bond prices to rise and the interest rate to rise.
D)buy bonds, which would cause bond prices to rise but have an uncertain effect upon the interest rate.

Question

Refer to the above market for money diagram.If the interest rate was at 3 percent, people would:
A)sell bonds, which would cause bond prices to fall and the interest rate to rise. 
B)buy bonds, which would cause bond prices to fall and the interest rate to rise. 
C)sell bonds, which would cause bond prices to rise and the interest rate to rise. 
D)buy bonds, which would cause bond prices to rise but have an uncertain effect upon the interest rate.

Quizplus · Accepted Answer

When the interest rate is at 3 percent, people would sell bonds. This would lead to an increase in the supply of bonds, which would result in a fall in bond prices. The fall in bond prices would cause the interest rate to rise as there would be an inverse relationship between bond prices and interest rates. Therefore, Option A is the correct answer.

Refer to the Above Market for Money Diagram