-Refer to Figure 9.1. The diagram shows that the initial equilibrium interest rate is i₁. Assume that the demand for money has increased due to an increase in Y. The new money demand curve is L(Y₀) . Determine the false statement from the following statements.

Question

-Refer to Figure 9.1. The diagram shows that the initial equilibrium interest rate is i<sub>1</sub>. Assume that the demand for money has increased due to an increase in Y. The new money demand curve is L(Y<sub>0</sub>) . Determine the false statement from the following statements. A) There is an excess demand for money. B) There is an excess supply of bonds. C) There is an upward pressure on the interest rate. D) There will be an upward pressure on the bond price.

Quizplus · Accepted Answer

An increase in the demand for money, shifting the money demand curve rightward, leads to an excess demand for money and an excess supply of bonds, putting upward pressure on interest rates. As interest rates rise, bond prices typically fall, not rise, making statement D false.