If the Quantity of Money Demanded Exceeds the Quantity of Money

question 118

Multiple Choice

If the quantity of money demanded exceeds the quantity of money supplied at a given interest rate,what will happen to restore the market to equilibrium?

• A) The public will try to buy bonds,the price of bonds will increase,and the interest rate will fall until equilibrium is attained where the money demand and supply curves intersect at the market interest rate.
• B) The public will try to sell bonds,the price of bonds will decrease,and the interest rate will rise until equilibrium is attained where the money demand and supply curves intersect at the market interest rate.
• C) The public will try to sell bonds,the price of bonds will increase,and the interest rate will fall until equilibrium is attained where the money demand and supply curves intersect.
• D) The public will try to buy bonds,the price of bonds will increase,and the interest rate will rise until equilibrium is attained where the money demand and supply curves intersect.
• E) The public will try to buy bonds,the price of bonds will decrease,and the interest rate will fall until equilibrium is attained where the money demand and supply curves intersect.

---

Definitions:

Investor

Someone or a group that puts money into ventures aiming for a return in terms of finance.

Compounded Semi-Annually

Refers to the process where interest is added to the principal balance of an investment, loan or deposit twice a year.

Compounded Quarterly

Interest calculation method where the interest is added to the principal every quarter, affecting the calculation for subsequent quarters.

Principal

The initial amount of money borrowed or invested, excluding any interest or dividends.