When households find themselves holding too much money,they respond by
A)purchasing interest-earning financial assets and interest rates fall.
B)purchasing interest-earning financial assets and interest rates rise.
C)holding the extra money and interest rates rise.
D)selling interest-earning financial assets,which eliminates the excess supply of money.

Question

Quizplus · Accepted Answer

When households hold too much money, they will try to invest it in interest-earning financial assets such as savings accounts, bonds, or stocks. This would increase the demand for these assets, causing their prices to rise and their yields to fall. And because interest rates are directly related to the yield of these assets, interest rates would also fall.

When Households Find Themselves Holding Too Much Money,they Respond by