If in the market for money the quantity of money demanded exceeds the money supply, we would expect the interest rate to:
A)fall, causing households and businesses to hold less money.
B)rise, causing households and businesses to hold less money.
C)rise, causing households and businesses to hold more money.
D)fall, causing households and businesses to hold more money.

Question

Quizplus · Accepted Answer

If the quantity of money demanded exceeds the money supply, it creates a shortage of money in the market. To resolve this shortage, the interest rates will rise, causing households and businesses to hold less money. When interest rates rise, it becomes more expensive to borrow money, and borrowing decreases. As a result, the demand for money decreases until it is equal to the money supply, and the market comes to equilibrium.

If in the Market for Money the Quantity of Money