When the Interest Rate Is Above the Equilibrium Level

question 5

Multiple Choice

When the interest rate is above the equilibrium level,

• A)the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied.
• B)people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts.
• C)bond issuers and banks respond by lowering the interest rates they offer.
• D)All of the above are correct.

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Definitions:

Primary Market

The financial market for new securities issues where corporations sell new stocks and bonds to the public for the first time.

Equity Offering

The issuance of new shares by a company to the public or to institutional investors to raise capital.

Secondary Markets

Markets where securities are traded after being initially offered or sold in the primary market.

Stock Market Transaction

A financial operation such as buying, selling, or trading stocks that takes place in the stock market.