Figure 24-1 -Refer to Figure 24-1.Which of the Following Is Correct

question 206

Multiple Choice

Figure 24-1
-Refer to Figure 24-1.Which of the following is correct?

• A) If the interest rate is 4 percent,there is excess money demand,and the interest rate will fall.
• B) If the interest rate is 3 percent,there is excess money supply,and the interest rate will rise.
• C) Starting with an interest rate of 4 percent,the demand for goods and services will increase until the money market reaches a new equilibrium.
• D) None of the above is correct.

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Definitions:

Fisher Effect

An economic theory suggesting that the real interest rate is independent of monetary measures, with the nominal interest rate adjusting to expected inflation.

Rate Of Return

is the gain or loss on an investment over a specific period, expressed as a percentage of the investment’s initial cost.

Inflation Risk

The likelihood that the value of assets or income will decrease as inflation shrinks the purchasing power of a currency.

Term Structure

The relationship between interest rates or bond yields and different terms to maturity, typically depicted in a yield curve.