Use the following to answer questions:
Figure: A Money Market
-(Figure: A Money Market) Refer to Figure: A Money Market. If the interest rate is r₃, the interest rate will _____ because there is a _____ of money in the market.

Question

Use the following to answer questions:
Figure: A Money Market

-(Figure: A Money Market) Refer to Figure: A Money Market. If the interest rate is r₃, the interest rate will _____ because there is a _____ of money in the market.

Quizplus · Accepted Answer

According to the graph, at the interest rate of r₃, there is a surplus of money in the market as the quantity of money supplied (MS) is greater than the quantity of money demanded (MD). When there is a surplus of money in the market, the interest rate falls as banks and other financial institutions compete to offer loans at lower interest rates to attract borrowers. Therefore, the correct choice is A, fall; surplus.

Use the Following to Answer Questions