$$\begin{array} { | c | c | c | c | }
\hline \text { Money Supply } & \text { Money Demand } & \text { Interest Rate } & \begin{array} { c }
\text { Investment (at Interest } \
\text { Rate Shown) }
\end{array} \
\hline \$ 400 & \$ 600 & 2 \% & \$ 700 \
\hline \$ 400 & 500 & 3 & 600 \
\hline \$ 400 & 400 & 4 & 500 \
\hline \$ 400 & 300 & 5 & 300 \
\hline \$ 400 & 200 & 6 & 200 \
\hline
\end{array}$$
Answer the question based on the information in the table. An interest rate of 2 percent is not sustainable because
A) the demand for bonds in the bond market will fall and the interest rate will fall.
B) the demand for bonds in the bond market will rise and the interest rate will fall.
C) the supply of bonds in the bond market will decline and the interest rate will rise.
D) the supply of bonds in the bond market will rise and the interest rate will rise.

Question

$$\begin{array} { | c | c | c | c | } 
\hline \text { Money Supply } & \text { Money Demand } & \text { Interest Rate } & \begin{array} { c } 
\text { Investment (at Interest } \
\text { Rate Shown) }
\end{array} \
\hline \$ 400 & \$ 600 & 2 \% & \$ 700 \
\hline \$ 400 & 500 & 3 & 600 \
\hline \$ 400 & 400 & 4 & 500 \
\hline \$ 400 & 300 & 5 & 300 \
\hline \$ 400 & 200 & 6 & 200 \
\hline
\end{array}$$ 
Answer the question based on the information in the table. An interest rate of 2 percent is not sustainable because
A) the demand for bonds in the bond market will fall and the interest rate will fall.
B) the demand for bonds in the bond market will rise and the interest rate will fall.
C) the supply of bonds in the bond market will decline and the interest rate will rise.
D) the supply of bonds in the bond market will rise and the interest rate will rise.

Quizplus · Accepted Answer

When money demand exceeds money supply, as is the case when the money supply is $400 and money demand is $600, interest rates tend to rise to equilibrate the money market. This is because the excess demand for money (which can be satisfied by selling bonds, thereby increasing their supply) puts upward pressure on interest rates.

Answer the Question Based on the Information in the Table