Suppose that the interest rate is greater than the equilibrium interest rate.Which of the following statements is true? I.There is an excess quantity of money.
II.The quantity of money automatically increases.
III.The interest rate falls to achieve equilibrium.
A)I only
B)II only
C)III only
D)I and III only
E)None of the above statements are true.

Question

Quizplus · Accepted Answer

When the interest rate is greater than the equilibrium interest rate, there is an excess supply of money because at higher interest rates, people prefer to hold less money and invest more. This excess supply of money puts downward pressure on the interest rate, causing it to fall towards equilibrium. Statement II is incorrect because the quantity of money does not automatically increase; it's the interest rate adjustment that restores equilibrium.

Suppose That the Interest Rate Is Greater Than the Equilibrium