When the interest rate is below the equilibrium level,
A)the quantity of money that the Federal Reserve has supplied exceeds the quantity of money that people want to hold.
B)people respond by selling interest-bearing bonds or by withdrawing money from 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 below the equilibrium level, people are less inclined to hold money because they can earn more by holding interest-bearing assets, leading them to sell bonds or withdraw from interest-bearing accounts.

When the Interest Rate Is Below the Equilibrium Level