When the market for money is in equilibrium:
A)the quantity of money demanded equals the quantity of money supplied.
B)the interest rate is neither increasing nor decreasing.
C)bond prices are stable.
D)all of the above hold true.

Question

Quizplus · Accepted Answer

In equilibrium, the quantity of money demanded by borrowers is exactly equal to the quantity of money supplied by lenders, so choice (A) is true. At the same time, the interest rate is stable because there is no excess supply or demand for money pushing the rate up or down, so choice (B) is also true. Finally, bond prices tend to be stable when interest rates are stable, so choice (C) is true as well. Therefore, all three choices are correct, and the answer is (D).

When the Market for Money Is in Equilibrium