If there is excess money demand, what will people do and what happens to the interest rate?
A) People will deposit more into interest-bearing accounts, and the interest rate will fall.
B) People will deposit more into interest-bearing accounts, and the interest rate will rise.
C) People will withdraw money from interest-bearing accounts, and the interest rate will fall.
D) People will withdraw money from interest-bearing accounts, and the interest rate will rise.

Question

Quizplus · Accepted Answer

If there is excess money demand, people will try to withdraw money from interest-bearing accounts to hold more cash. This will lead to a decrease in the supply of funds in the banking system, and banks will have to raise the interest rate to encourage people to keep their money in the bank. Therefore, the interest rate will rise.

If There Is Excess Money Demand, What Will People Do