Suppose the Equilibrium Interest Rate in the Money Market Is

question 415

Multiple Choice

Suppose the equilibrium interest rate in the money market is 5 percent and the current interest rate is 7 percent. As a result

• A) the interest rate rises.
• B) real GDP increases.
• C) the demand for money curve shifts rightward.
• D) people buy bonds and the interest rate falls.

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Definitions:

Trading

The act of buying and selling assets, such as stocks, bonds, commodities, or currencies, in financial markets to earn a profit.

Treasury Bills

Short-term government securities issued at a discount from the par value and mature without paying interest, where the difference represents the return to the investor.

Commercial Paper

An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories, and meeting short-term liabilities.

Corporate Bonds

Long-term debt issued by private corporations typically paying semiannual coupons and returning the face value of the bond at maturity.