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Figure: Equilibrium in the Money Market
-(Figure: Equilibrium in the Money Market) Refer to Figure: Equilibrium in the Money Market. If the interest rate is above equilibrium, there will be an excess _____ money and the interest rate will _____.
A) demand for; rise
B) supply of; fall
C) demand for; fall
D) supply of; rise

Question

Use the following to answer questions:
Figure: Equilibrium in the Money Market 
-(Figure: Equilibrium in the Money Market) Refer to Figure: Equilibrium in the Money Market. If the interest rate is above equilibrium, there will be an excess _____ money and the interest rate will _____.
A) demand for; rise 
B) supply of; fall 
C) demand for; fall 
D) supply of; rise

Quizplus · Accepted Answer

If the interest rate is above equilibrium, it means that the actual interest rate is higher than the equilibrium interest rate. This implies that the quantity of money supplied is greater than the quantity of money demanded, which results in an excess supply of money in the market. As a result, individuals and businesses will be willing to lend out money at lower interest rates, leading to a fall in the interest rate until it reaches the equilibrium level.

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