If the Equilibrium Interest Rate in the Money Market Is

question 43

Multiple Choice

If the equilibrium interest rate in the money market is 5%, then at an interest rate of 2%, the quantity of money demanded is _____ than quantity of money supplied.

• A) less than
• B) greater than
• C) equal to
• D) It is impossible to predict which is greater, money demanded or money supplied.

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Definitions:

Money Supply

The total financial resources existing in an economy at a certain time.

Open Market Operations

These are financial activities where central banks buy or sell government securities in the open market to control the money supply and influence interest rates.

Required Reserve Ratio

The fraction of deposits that a bank is mandated by regulations to hold in reserve and not loan out.

Excess Reserves

The amount of reserves that a bank holds beyond the required minimum, which can be loaned out to generate earnings.