If there is excess money supply, what will people do and what happens to the interest rate?
A) People will deposit more into interest-bearing accounts, and the interest rate will fall.
B) People will deposit more into interest-bearing accounts, and the interest rate will rise.
C) People will withdraw money from interest-bearing accounts, and the interest rate will fall.
D) People will withdraw money from interest-bearing accounts, and the interest rate will rise.

Question

Quizplus · Accepted Answer

When there is excess money supply, people tend to deposit more into interest-bearing accounts as they have more cash than needed for their immediate consumption. This increase in deposits leads banks to have more funds to lend, which typically results in a decrease in interest rates as banks compete to lend out their excess reserves.

If There Is Excess Money Supply, What Will People Do