If the nominal interest rate is above 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)less; rise; decrease
C)greater; rise; increase
D)less; fall; increase

Question

Quizplus · Accepted Answer

When the nominal interest rate is above the equilibrium, the quantity demanded of money is less than the quantity supplied by the Fed. In this case, bond prices rise as bonds are bought to shed cash, which drives the nominal interest rate down.

If the Nominal Interest Rate Is Above the Equilibrium Value