Exhibit 20-2  Money Market Demand and Supply Curves Starting from an Equilibrium

question 234

Multiple Choice

Exhibit 20-2  Money market demand and supply curves Starting from an equilibrium at E₁ in Exhibit 20-2, a rightward shift of the money supply curve from MS₁ to MS₂ would cause an excess:

• A) demand for money, leading people to sell bonds.
• B) supply of money, leading people to buy bonds.
• C) supply of money, leading people to sell bonds.
• D) demand for money, leading people to buy bonds.

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Definitions:

Repayment

The act of paying back money previously borrowed from a lender.

Semiannually

Occurring or done twice a year, typically every six months.

Debt Investments

Investments in bonds or other forms of debt securities that provide the investor with interest income.

Bonds

Fixed income investments representing a loan made by an investor to a borrower, typically corporate or governmental, which pays periodic interest payments and returns the principal at maturity.