If the quantity of money demanded is less than the quantity of money supplied, then the
A) interest rate stays the same.
B) interest rate will increase.
C) interest rate will decrease.
D) effect on the interest rate is indeterminate.

Question

Quizplus · Accepted Answer

When the quantity of money demanded is less than the quantity of money supplied, there is excess supply of money. This leads to lower interest rates as banks and other financial institutions have more capital to lend, reducing the cost of borrowing.

If the Quantity of Money Demanded Is Less Than the Quantity