In the Money Market, If the Interest Rate Exceeds the Equilibrium

question 127

Multiple Choice

In the money market, if the interest rate exceeds the equilibrium interest, there is a surplus of money. How is the surplus eliminated?

• A)The Reserve Bank will destroy currency, reducing the quantity of money.
• B)People buy bonds to rid themselves of the surplus money, bidding up their price and pushing interest rates down.
• C)The high interest rate increases the demand for money, eliminating the surplus.
• D)Banks will lend out the surplus, lowering interest rates.

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Definitions:

Socially Optimal Price

The price of a good or service that reflects the external costs and benefits to society, aiming to achieve the most efficient allocation of resources.

Big Data

Extremely large data sets that may be analyzed computationally to reveal patterns, trends, and associations, especially relating to human behavior and interactions.

Reservation Price

The maximum or minimum price at which a consumer is willing to buy or sell a good or service.

Elastic Demand

A situation where the demand for a product or service significantly changes in response to a change in price.