FIGURE 27-2 -Refer to Figure 27-2. If the Interest Rate Is I1

question 135

Multiple Choice

FIGURE 27-2
-Refer to Figure 27-2. If the interest rate is i1, 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) the MS curve will shift to the left so as to maintain the interest rate at i2.
• C) the interest rate will remain at i1 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.
• E) excess demand for money leads to a purchase of bonds, which in turn causes the interest rate to rise.