-Refer to the graph above to answer this question.Why is an interest rate of r₁ untenable?

Question

Quizplus · Accepted Answer

An interest rate of r₁ is untenable because if people have excess money, they are likely to sell bonds to convert this excess money into an asset that earns interest, which increases the supply of bonds in the market. As the supply of bonds increases, their price falls, and since bond prices and interest rates move inversely, the interest rate increases.

-Refer to the Graph Above to Answer This Question