Assume the demand for money curve is stationary and the RBA increases the money supply. The result is that people:
A) increase the supply of bonds, thus driving up the interest rate.
B) increase the supply of bonds, thus driving down the interest rate.
C) increase the demand for bonds, thus driving up the interest rate.
D) increase the demand for bonds, thus driving down the interest rate.

Question

Quizplus · Accepted Answer

When the RBA increases the money supply, people have more money than they desire to hold, leading them to buy bonds. This increases the demand for bonds, which drives up bond prices and consequently drives down the interest rate.

Assume the Demand for Money Curve Is Stationary and the RBA