12% Md 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $million The graph above shows a Keynesian liquidity preference model. Consider three scenarios: Scenario 1:...

Extracted text: 12% Md 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $million The graph above shows a Keynesian liquidity preference model. Consider three scenarios: Scenario 1: Credit risk increases and as a result some people try to get rid of their bonds and hold money instead. Scenario 2: The general price level increases and as a result people decide to hold more money to buy the now-more-expensive goods and services. Scenario 3: The level of household income or wealth increases and as a result people afford holding more money. Demand for money increases by $100 million under either scenario and the interest rate increases to percent. Now ask yourself this question: Is this result consistent with the bond-market model under all the above scenarios? Interest Rate