If the quantity of money demanded exceeds the money supply,it can be expected that the:

Question

Quizplus · Accepted Answer

If the quantity of money demanded exceeds the money supply, there is excess demand in the money market which will lead to an increase in the interest rate. This is because people will bid up the price of money (interest rates) as they compete for a limited supply of money. Therefore, the correct answer is C) interest rate will rise. Choices A, B, D, and E are incorrect as they do not provide a correct explanation of what would happen in the given circumstance.

If the Quantity of Money Demanded Exceeds the Money Supply,it