If the interest rate is above the equilibrium interest rate, how is equilibrium achieved in the money market?
A)People sell goods to try to raise more money, lowering the price of goods and lowering the interest rate.
B)People buy bonds to get rid of their excess money, raising the price of bonds and lowering the interest rate.
C)People sell bonds to try to raise more money, raising the price of bonds and lowering the interest rate.
D)People buy goods to get rid of their excess money, lowering the price of goods and lowering the interest rate.
E)People buy bonds to get rid of their excess money, lowering the price of bonds and lowering the interest rate.

Question

Quizplus · Accepted Answer

When the interest rate is above the equilibrium interest rate, there is excess supply of money in the money market. People will therefore try to get rid of their excess money by purchasing bonds, which increases the demand for bonds, raising their price and lowering the interest rate until equilibrium is reached.

If the Interest Rate Is Above the Equilibrium Interest Rate