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

question 466

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

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