If the nominal interest rate is above the equilibrium level ________.
A)purchases of bonds and other assets will cause the interest rate to fall
B)issuance of bonds and other assets will cause the supply of real money balances to increase
C)the opportunity cost of holding money is low,and is rising
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

If the nominal interest rate is above the equilibrium level, it means there is an excess supply of funds in the market. As a result, people will start to purchase bonds and other assets, which will increase the demand for these instruments and cause their prices to rise. As bond prices rise, the interest rate falls, and the market moves towards equilibrium.

If the Nominal Interest Rate Is Above the Equilibrium Level