Refer to the given market-for-money diagrams. 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 given market-for-money diagrams. 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

According to the market-for-money diagram, at an interest rate of 8 percent, the quantity of money supplied (MS) is greater than the quantity of money demanded (MD). This creates a surplus of money in the market, causing bond prices to fall and the interest rate to fall. In order to reach equilibrium, people would need to buy bonds, which would increase bond prices and decrease the interest rate. Therefore, the correct answer is B.

Refer to the Given Market-For-Money Diagrams