Refer to the given market-for-money diagrams. If the interest rate was at 8 percent, people would have insufficient liquidity, which would cause them to reduce their spending on consumer goods. buy bonds, which would cause bond prices to fall and the interest rate to rise. sell bonds, which would cause bond prices to fall and the interest rate to fall. buy bonds, which would cause bond prices to rise and the interest rate to fall.

buy bonds, which would cause bond prices to rise and the interest rate to fall.

Explanation:

Notice that at 8%, the demand for money is less than than the supply of money. This means that people have more money than they want at the current time.

To counter this, they will use this "excess" money to buy bonds. This will increase the demand for bonds and as the the laws of demand and supply apply, the prices of bonds would increase as result. Interest rates will therefore fall on account of the inverse relationship between bonds and interest rates.

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