If the nominal interest rate is below the equilibrium value, then the quantity demanded of money is ________ than the quantity supplied of money, bond prices will ________, and the nominal interest rate will ________.
A)greater; fall; increase
B)greater; fall; decrease
C)greater; rise; increase
D)less; fall; increase

Question

Quizplus · Accepted Answer

When the nominal interest rate is below the equilibrium, the quantity demanded of money is greater than the quantity supplied by the Fed. In this case, bond prices fall as bonds are sold to raise cash, which drives the nominal interest rate up.

If the Nominal Interest Rate Is Below the Equilibrium Value