When interest rates rise, there immediately is an excess

Question

Quizplus · Accepted Answer

When interest rates rise, the cost of borrowing money increases, which leads to a decrease in the demand for money. This results in an excess supply of money in the market. At the same time, the higher interest rates make bonds more attractive to investors as they will now offer a higher return. This leads to an excess demand for bonds in the market. Therefore, the correct choice is B, i.e., an excess supply of money and an excess demand for bonds.

When Interest Rates Rise, There Immediately Is an Excess