If there is initially an

Question

Quizplus · Accepted Answer

If there is an excess supply of money, there will be downward pressure on the interest rate as people try to dispose of the excess cash balances. If there is initially an excess demand for money, the interest rate will rise as people scramble to get the needed funds. However, this increase in the interest rate will attract more deposits to the banking system, increasing the supply of money, and ultimately bringing the interest rate back down. Thus, if there is a persistent excess supply of money, the interest rate will keep falling until the excess cash balances are absorbed.

If There Is Initially an