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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 rate of interest is below 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 rate of interest is below 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 below equilibrium, the demand for money exceeds the supply, leading to an excess demand for money. This causes the interest rate to rise as people are willing to pay more to borrow money.

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