When the interest rate is above the equilibrium level,
A)the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied.
B)people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts.
C)bond issuers and banks respond by lowering the interest rates they offer.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

When the interest rate is above the equilibrium level, people hold less money and prefer interest-bearing assets, leading to a surplus of money. This prompts bond issuers and banks to lower interest rates to encourage borrowing and spending, making all statements correct.

When the Interest Rate Is Above the Equilibrium Level