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

Question

Quizplus · Accepted Answer

If the quantity of money demanded exceeds the quantity of money supplied, this will increase the demand for money and lead to a higher equilibrium interest rate. This is because borrowers will be willing to pay a higher price (interest rate) for the scarce funds, while lenders will be able to charge a higher price to meet the excess demand.

If the Quantity of Money Demanded Exceeds the Quantity of Money