Answer the Question Based on the Information in the Table

question 310

Multiple Choice

$$\begin{array} { | c | c | c | c | } \hline \text { Money Supply } & \text { Money Demand } & \text { Interest Rate } & \begin{array} { c } \text { Investment (at Interest } \\\text { Rate Shown) }\end{array} \\\hline \$ 400 & \$ 600 & 2 \% & \$ 700 \\\hline \$ 400 & 500 & 3 & 600 \\\hline \$ 400 & 400 & 4 & 500 \\\hline \$ 400 & 300 & 5 & 300 \\\hline \$ 400 & 200 & 6 & 200 \\\hline\end{array}$$
Answer the question based on the information in the table. Suppose the legal reserve requirement is 10 percent and initially there are no excess reserves in the banking system. If the Fed wished to reduce the interest rate by 1 percentage point, it would

• A) sell $10 of government bonds in the open market.
• B) buy $100 of government bonds in the open market.
• C) sell $100 of government bonds in the open market.
• D) buy $10 of government bonds in the open market.

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