When the interest rate is below the equilibrium interest rate, there is an excess money and the interest rate will .

When the interest rate is below the equilibrium interest rate, there is an excess ________ money and the interest rate will ________.

A) demand for; fall

B) supply of; fall

C) demand for; rise

D) supply of; rise

Expert Solution

The right option is (c).

Explanation:

When the interest rate is below the equilibrium interest rate, there is an excess demand for money and the interest rate will rise..

All else being equal, a larger money supply or smaller money demanded lowers market interest rates, making it less expensive for consumers to borrow. Conversely, smaller money supplied or larger money demanded tend to raise market interest rates, making it pricier for consumers to take out a loan. In this case, smaller money supplied or a larger money demanded, hence interest rate rises.

Therefore, combining the graph above and the statement above.

In the question, the interest rate is below equilibrium level and thus money demand is high (excess demand for money) and so when the money demanded is higher (larger) than the money supplied, then interest rate also rises.

So when the money demanded is higher (larger) than the money supplied, then interest rate also rises.

Junaid answered 1 year ago

Equilibrium interest rate is achieved in the money market when aggregate demand for real monetary assets...

Equilibrium interest rate is achieved in the money market when aggregate demand for real monetary assets equals the supply of real monetary assets. a. Write down the condition required for equilibrium in the money market using real quantities of monetary assets. b. The aggregate real money demand function is given as L(R, Y). For a given level of income, real money demand decreases as interest rate increases. Explain why L is negatively related to interest rates. How is the real...

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 _____.

Can the money market be in equilibrium for any combination of money supply and interest rate...

Can the money market be in equilibrium for any combination of money supply and interest rate given a fixed money demand curve?

What will happen to the nominal interest rate and the equilibrium quantity of money because of...

What will happen to the nominal interest rate and the equilibrium quantity of money because of the following changes? Draw a separate diagram (of the static liquidity-preference model) for each case and explain. Label the diagram clearly. a) A decrease in money supply. b) An increase in the level of prices

When the supply and demand for money are expressed in a graph with the interest rate...

When the supply and demand for money are expressed in a graph with the interest rate on the vertical axis and the quantity of money on the horizontal axis, an increase in the price level none of these answers shifts money demand to the right and increases the interest rate. shifts money demand to the right and decreases the interest rate. shifts money demand to the left and increases the interest rate. A multiple-choice question with one possible answer.(Required) If...

37. Based on_____, changes in the interest rate bring the money market into equilibrium. a. classical...

37. Based on_____, changes in the interest rate bring the money market into equilibrium. a. classical theory, but not liquidity preference theory. b. neither liquidity preference theory nor classical theory. c. liquidity preference theory, but not classical theory. d. both liquidity preference theory and classical theory 38. A housing market boom may lead to ____ a. increases in aggregate supply, which the center bank could offset by increasing the money supply. b. increases in aggregate demand, which the center bank...

3- Explain the impact on the following events on the money market equilibrium and equilibrium interest...

3- Explain the impact on the following events on the money market equilibrium and equilibrium interest rates. (25 pts): a) Real GDP increases due to an increase in exports (12.5 pts) b) Central bank sells government bonds in the private financial markets. (12.5 pts)

When the wage rate paid to labor is below equilibrium: A) the supply of labor increases....

When the wage rate paid to labor is below equilibrium: A) the supply of labor increases. B) the demand for labor decreases. C) the number of workers seeking jobs exceeds the number of jobs available. D) the number of jobs available exceeds the number of workers seeking jobs.

Explain why the loanable funds market will return to an equilibrium interest rate when the actual...

Explain why the loanable funds market will return to an equilibrium interest rate when the actual interest rate is below the equilibrium interest rate.

When the actual and expected (or anticipated) inflation rates are both zero, the money interest rate...

When the actual and expected (or anticipated) inflation rates are both zero, the money interest rate must equal the real interest rate. How might inflation affect the money interest rate? The nominal interest rate is determined by the forces of supply and demand in the loanable funds market (in millions of dollars). The following calculator shows the market for loanable funds. You can shift the supply and demand curves by changing the values of the supply and demand shifters on...

Question