Suppose the equilibrium interest rate in the money market is 5 percent and the current interest rate is 7 percent. As a result,
A) real GDP increases.
B) the interest rate rises.
C) people buy bonds and the interest rate falls.
D) the demand for money curve shifts rightward.

Question

Quizplus · Accepted Answer

When the current interest rate is higher than the equilibrium rate, people are incentivized to buy bonds, which increases the demand for bonds and decreases the interest rate towards the equilibrium level.

Suppose the Equilibrium Interest Rate in the Money Market Is