Refer to the above market for money diagram.If the interest rate was at 8 percent, people would:
A)sell bonds, which would cause bond prices to fall and the interest rate to fall.
B)buy bonds, which would cause bond prices to rise and the interest rate to fall.
C)have insufficient liquidity, which would cause them to reduce their spending on consumer goods.
D)buy bonds, which would cause bond prices to fall and the interest rate to rise.

Question

Refer to the above market for money diagram.If the interest rate was at 8 percent, people would:
A)sell bonds, which would cause bond prices to fall and the interest rate to fall. 
B)buy bonds, which would cause bond prices to rise and the interest rate to fall. 
C)have insufficient liquidity, which would cause them to reduce their spending on consumer goods. 
D)buy bonds, which would cause bond prices to fall and the interest rate to rise.

Quizplus · Accepted Answer

At an interest rate of 8 percent, people would want to buy bonds because they offer a higher return than keeping their money in their wallets. This increase in demand for bonds would cause bond prices to rise and therefore the interest rate to fall.

Refer to the Above Market for Money Diagram