If the interest rate is above the equilibrium interest rate, then
A) people will buy bonds and the interest rate will fall.
B) people will sell bonds and the interest rate will fall.
C) the quantity of money demanded exceeds the quantity supplied.
D) there is an excess demand for money.

Question

Quizplus · Accepted Answer

When the interest rate is above the equilibrium rate, people prefer to hold bonds because they offer higher returns, leading to increased demand for bonds, which causes the interest rate to fall back towards equilibrium.

If the Interest Rate Is Above the Equilibrium Interest Rate