Use the following to answer questions:
-(Figure: Money Market I)Refer to Figure: Money Market I.If the money market is initially in equilibrium at point E and the central bank buys Treasury bills,then the interest rate will:

Question

Use the following to answer questions: 
-(Figure: Money Market I)Refer to Figure: Money Market I.If the money market is initially in equilibrium at point E and the central bank buys Treasury bills,then the interest rate will:

Quizplus · Accepted Answer

When the central bank buys Treasury bills, it injects money into the economy, which increases the supply of money in the money market. This will cause the interest rate to fall towards the new equilibrium point of i_L, where the supply of money intersects with the demand for money. Therefore, option B is the correct answer.

Use the Following to Answer Questions