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Question 27

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Use the following to answer questions:
Figure: Short-Run Determination of the Interest Rate Use the following to answer questions: Figure: Short-Run Determination of the Interest Rate -(Figure: Short-Run Determination of the Interest Rate) Refer to Figure: Short-Run Determination of the Interest Rate. If the money supply is at MS<sub>1</sub> and the central bank buys Treasury bills, then in the short run the interest rate will: A) increase above r<sub>1</sub>. B) remain at r<sub>1</sub>. C) decrease to r<sub>2</sub>. D) fluctuate randomly.
-(Figure: Short-Run Determination of the Interest Rate) Refer to Figure: Short-Run Determination of the Interest Rate. If the money supply is at MS1 and the central bank buys Treasury bills, then in the short run the interest rate will:


A) increase above r1.
B) remain at r1.
C) decrease to r2.
D) fluctuate randomly.

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