On any given day if the market interest rate is above the equilibrium interest rate level,
A) the Fed will declare a monetary policy.
B) there will be a shortage of loanable funds and interest rates will increase.
C) there will be a surplus of loanable funds at that rate and rates will decline to the equilibrium rate.
D) there will be a shortage of loanable funds at that rate and rates will increase to the equilibrium rate.

Question

Quizplus · Accepted Answer

When the market interest rate is above the equilibrium interest rate, there is a surplus of loanable funds because lenders are willing to lend more than borrowers want to borrow at that high rate. This surplus puts downward pressure on interest rates, causing them to decline towards the equilibrium rate.

On Any Given Day If the Market Interest Rate Is