The equilibrium interest rate occurs in the money market where the:
A) quantity of money available is zero.
B) maximum quantity of funds has been borrowed and loaned.
C) money supply is equal to the money demanded.
D) quantity of money demanded is zero.

Question

Quizplus · Accepted Answer

At equilibrium, the quantity of money supplied by the central bank is equal to the quantity of money demanded by households, firms and government. This is where the demand for money intersects the supply of money and the interest rate is determined. Therefore, the equilibrium interest rate occurs where the money supply is equal to the money demanded, which is option C.

The Equilibrium Interest Rate Occurs in the Money Market Where