Suppose that at a given interest rate and money supply,all firms and households simultaneously try to add to their money balances.They do this by trying to ________,which causes an excess ________,which causes a(n)________,and finally a(n)________ in the interest rate.

Question

Quizplus · Accepted Answer

When firms and households try to add to their money balances by selling bonds, it increases the supply of bonds in the market. This leads to a decrease in the price of bonds due to excess supply. Consequently, the interest rate increases because the price of bonds and interest rates move in opposite directions.

Suppose That at a Given Interest Rate and Money Supply,all