Figure 16-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 16-4. Suppose the money-demand curve is currently MD₁. If the current interest rate is r₂, then A) the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. B) people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. C) bond issuers and banks will respond by raising the interest rates they offer. D) in response, the money-demand curve will shift upward from its current position to establish equilibrium in the money market.

Question

Quizplus · Accepted Answer

If the current interest rate is r2 and the money-demand curve is MD1, the quantity of money demanded is less than the quantity supplied, leading to an excess supply of money.