If the equilibrium interest rate in the money market is 5%, at an interest rate of 2% the quantity of nonmonetary interest-bearing financial assets demanded is _____ the quantity supplied.
A) less than
B) greater than
C) equal to
D) irrelevant to

Question

Quizplus · Accepted Answer

At an interest rate of 2%, the interest rate is below the equilibrium interest rate of 5%. This means that the quantity of nonmonetary interest-bearing financial assets demanded (by borrowers) is less than the quantity supplied (by lenders). This is because borrowers are willing to borrow more at a lower interest rate, while lenders are less willing to supply at a lower interest rate. Therefore, there is excess supply of nonmonetary interest-bearing financial assets at an interest rate of 2%, leading to a shortage in demand.

If the Equilibrium Interest Rate in the Money Market Is