FIGURE 27-2 -Refer to Figure 27-2. If the Interest Rate Is I2

question 5

Multiple Choice

FIGURE 27-2
-Refer to Figure 27-2. If the interest rate is i2, the subsequent adjustment in the money market is as follows:

• A) excess demand for money leads to a sale of bonds, which in turn causes the interest rate to rise.
• B) MS curve will shift to the left as to maintain the interest rate at i2.
• C) the interest rate will remain at i2, because the money market is in equilibrium at this interest rate.
• D) excess supply of money leads to the purchase of bonds, which in turn causes the interest rate to fall to i 0.
• E) excess supply of money leads to the sale of bonds, which in turn causes the interest rate to fall.

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