When the general interest rate reaches a very low level, which of the following statements will be correct?
- A.Most people will expect the interest rate to rise in the future.
- B.Most people will prefer to hold bonds.
- C.Most people will speculate a further decline in the rate of interest.
- D.Any increase in the money supply will cause the interest rate to fall further.
Show answer
When the rate of interest is already very low, people believe it can hardly fall further and must rise, so they hold cash instead of bonds.
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