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In: Economics

When there is an excess demand for money, households will _____ interest-bearing bonds, causing interest rates...

When there is an excess demand for money, households will _____ interest-bearing bonds, causing interest rates to _____.

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Expert Solution

When there is an excess demand for money , households will sell interest - bearing bonds , causing interst rates to rise.

When there is excess demand for money , households will try to fulfill this money demand by selling bonds , this causes price of bonds to fall as there is less demand for bonds in the market . As price of bonds fall , interest rates rises because price of bonds and interest rates are inversely related .

Rahul Sunny answered 2 years ago
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