Which of the following would best explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loans made?
A) A decrease in excess reserves.
B) An increase in excess reserves.
C) A decrease in the demand for loans.
D) An increase in the demand for loans.

Question

Quizplus · Accepted Answer

A decrease in excess reserves would lead to banks having less money to lend out, which would increase the interest rate due to the lower supply of loans. At the same time, the higher interest rates would decrease the quantity of loans made as borrowing becomes more expensive.

Which of the Following Would Best Explain an Increase in the Equilibrium