If there are just two assets,bonds and money,then an equilibrium between the quantity demanded of money and the quantity supplied of money implies

Question

Quizplus · Accepted Answer

Since there are only two assets, an equilibrium between the quantity demanded of money and the quantity supplied of money would suggest that there is equilibrium in the bond market as well. This is because the only other financial asset available is bonds, and if there were an excess supply of bonds, people would sell their bonds to acquire more money, causing an increase in the quantity demanded of money, and vice versa. Therefore, the equilibrium in the money market implies equilibrium in the bond market as well. The other answer choices are incorrect because they do not reflect the relationship between the quantity demanded and supplied of money and the bond market.

If There Are Just Two Assets,bonds and Money,then an Equilibrium