When the nominal interest rate is ________ the equilibrium interest rate, the quantity of money demanded is less than the quantity of money supplied; when the nominal interest rate is ________ the equilibrium interest rate, the quantity of money demanded exceeds the quantity of money supplied.
A) less than; greater than
B) equal to; less than
C) greater than; equal to
D) greater than; less than
E) equal to; greater than

Question

Quizplus · Accepted Answer

When the nominal interest rate is greater than the equilibrium interest rate, people hold less money because they can earn a higher return by investing in bonds or other assets. This leads to a situation where the quantity of money demanded is less than the quantity of money supplied. Conversely, when the nominal interest rate is less than the equilibrium interest rate, people prefer to hold more money as it is relatively more attractive than other assets. This leads to a situation where the quantity of money demanded exceeds the quantity of money supplied.

When the Nominal Interest Rate Is ________ the Equilibrium Interest