There is an inverse relationship between the bond price and the interest rate. A

Question

There is an inverse relationship between the bond price and the interest rate. Assume that the money demand curve is fixed and the Fed decreases the money supply. The result is that

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A. the price of bonds falls and interest rate falls.

B. the price of bonds rises and interest rate rises.

C. the price of bonds falls and interest rate rises.

D. the price of bonds rises and interest rate falls.

E. none of the above.

Explanation / Answer

B. the price of bonds rises and interest rate rises.

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