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Figure: Equilibrium in the Money Market
-(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. If the interest rate is above equilibrium, there will be an excess _____ money and the interest rate will _____.
A)demand for; rise
B)supply of; fall
C)demand for; fall
D)supply of; rise

Question

Use the following to answer questions :
Figure: Equilibrium in the Money Market 
-(Figure: Equilibrium in the Money Market) Look at the figure Equilibrium in the Money Market. If the interest rate is above equilibrium, there will be an excess _____ money and the interest rate will _____.
A)demand for; rise 
B)supply of; fall 
C)demand for; fall 
D)supply of; rise

Quizplus · Accepted Answer

If the interest rate is above equilibrium, there will be an excess supply of money as people will be less inclined to borrow money due to the high interest rate. As a result, the supply of money will increase, leading to a decrease in the interest rate towards the equilibrium level.

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