If, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will
A) fall, causing households and businesses to hold less money.
B) rise, causing households and businesses to hold less money.
C) rise, causing households and businesses to hold more money.
D) fall, causing households and businesses to hold more money.

Question

Quizplus · Accepted Answer

If the quantity of money demanded exceeds the money supply, there is excess demand for money. As a result, lenders will raise the interest rate to discourage borrowing and encourage saving. This increase in the interest rate will cause households and businesses to hold less money, which will ultimately decrease the demand for money and bring the market back into equilibrium.

If, in the Market for Money, the Quantity of Money