People react to an excess supply of money by:
A) selling bonds, thus driving up the interest rate.
B) selling bonds, thus driving down the interest rate.
C) buying bonds, thus driving up the interest rate.
D) buying bonds, thus driving down the interest rate.

Question

Quizplus · Accepted Answer

An excess supply of money means that there is more money available than there are goods and services to purchase. As a result, people will look to invest their excess money in something that will earn them a return, such as bonds. This increase in demand for bonds will drive up the price of bonds and lower the interest rate. Therefore, buying bonds will drive down the interest rate.

People React to an Excess Supply of Money By