Use the following to answer questions :
Exhibit: Market for Real Money Balances
-(Exhibit: Market for Real Money Balances) Based on the graph, if the interest rate is r₃, then people will ______ bonds and the interest rate will ______.

Question

Use the following to answer questions :
Exhibit: Market for Real Money Balances

-(Exhibit: Market for Real Money Balances) Based on the graph, if the interest rate is r₃, then people will ______ bonds and the interest rate will ______.

Quizplus · Accepted Answer

If the interest rate is at r₃, it indicates that the demand for real money balances is less than the supply at this interest rate, leading people to sell bonds to adjust their portfolios, which increases the supply of bonds and puts upward pressure on interest rates, causing them to rise.

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