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-(Figure: Short-Run Determination of the Interest Rate) Refer to Figure: Short-Run Determination of the Interest Rate.If the money supply is at MS₁ and the central bank buys Treasury bills,then in the short run the interest rate will:

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-(Figure: Short-Run Determination of the Interest Rate) Refer to Figure: Short-Run Determination of the Interest Rate.If the money supply is at MS₁ and the central bank buys Treasury bills,then in the short run the interest rate will:

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As the central bank buys Treasury bills, the money supply increases, shifting the money supply curve to the right from M₁ to M₂. This leads to a decrease in the interest rate from i₁ to i₂. Therefore, the correct choice is C, decrease to i₂.

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