Whenever There Is Excess Demand for Real Balances, Short-Run Adjustment

question 144

Multiple Choice

Whenever there is excess demand for real balances, short-run adjustment occurs because:

• A) savers and investors buy bonds and drive up their prices (drive down nominal rates of interest).
• B) investors and borrowers sell bonds (convert to cash) and drive down their prices (drive up nominal rates of interest).
• C) the price level falls to restore real balances.
• D) aggregate demand is decreased to restore equilibrium.