Exhibit 20-3  Money Market Demand and Supply Curves in Exhibit

Multiple Choice

Exhibit 20-3  Money market demand and supply curves In Exhibit 20-3, assume an equilibrium at E₂ with the money supply at $100 billion and the interest rate at 15 percent. The Fed uses its policy tools to move the economy to a new equilibrium at E₁ with a money supply of 150 billion and an interest rate of 10 percent. As part of the adjustment to the new equilibrium, we would expect the:

A) price of bonds to rise.
B) price of bonds to remain unchanged.
C) price of bonds to fall.
D) none of the above.