If there is initially an

Question

Quizplus · Accepted Answer

According to the demand and supply model for money, an excess supply of money will lead to a decrease in the interest rate. This is because people will be willing to lend money at a lower rate since there is an excess supply of money in the market. On the other hand, an excess demand for money will lead to an increase in the interest rate as people will be willing to pay a higher rate to borrow money. Therefore, if there is initially an excess demand for money, the interest rate will fall until the excess demand is satisfied. Similarly, if there is initially an excess supply of money, the interest rate will fall, and if there is an excess demand, the interest rate will rise until the market is cleared. Therefore, option B is the correct answer.

If There Is Initially an