If the interest rate is above the equilibrium value, the:
A) demand for real balances exceeds the supply.
B) supply of real balances exceeds the demand.
C) market for real balances clears.
D) demand for real balances increases.

Question

Quizplus · Accepted Answer

If the interest rate is above the equilibrium value, it means that the price of holding money (the interest rate) is too high and therefore the demand for money is lower and the supply of money is higher. This causes a surplus of real balances (money), so the supply of real balances exceeds the demand.

If the Interest Rate Is Above the Equilibrium Value, The