Suppose that the equilibrium nominal interest rate is 5 per cent and the equilibrium quantity of money is $1 billion. At any interest rate below 5 per cent,
A) there will be a surplus of money and bond prices will fall.
B) the interest rate will rise and bond prices will fall.
C) the supply of money will decrease.
D) the interest rate will fall and bond prices will fall.
E) there will be a surplus of money and bond prices will increase.

Question

Quizplus · Accepted Answer

At interest rates below the equilibrium, the demand for money exceeds the supply, causing people to sell bonds to obtain money, which increases the interest rate and decreases bond prices.

Suppose That the Equilibrium Nominal Interest Rate Is 5 Per