If the quantity of money supplied exceeds the quantity of money demanded,
A)this is evidence of a failed fiscal policy
B)this indicates that the supply of money curve is horizontal
C)the interest rate will fall
D)the quantity of money demanded will increase
E)the transactions money demand curve will shift to the right

Question

Quizplus · Accepted Answer

When the quantity of money supplied exceeds the quantity of money demanded, the market interest rate will fall until equilibrium is reached. This is because there is an excess supply of money, causing lenders to lower their interest rates in order to attract borrowers. This is not evidence of a failed fiscal policy, nor does it indicate a horizontal supply of money curve. The quantity of money demanded will not increase because it is determined by the interest rate, and the transactions money demand curve will not shift.

If the Quantity of Money Supplied Exceeds the Quantity of Money