The Following Graphs Show What Occurs During a Flight to Quality

question 33

Multiple Choice

The following graphs show what occurs during a flight to quality for the loanable funds market for T-bills (left) and the market for investment grade bonds (right) . 

Based on the information presented in the graphs, which of the following statements is true?

• A)As a result of the flight to quality, the interest rate in the Baa market increases, while the interest rate in the T-bill market falls.
• B)As a result of the flight to quality, there is an increase in the supply of loanable funds in the Baa market.
• C)As a result of the flight to quality, there is an increase in the supply of loanable funds in the both the T-bill market and the Baa market.
• D)As a result of the flight to quality, there is an increase in the demand of loanable funds in the Baa market.

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