Suppose that the equilibrium nominal interest rate is 5 percent and the equilibrium quantity of money is $1 trillion. At any interest rate below 5 percent,
A) the interest rate will rise and bond prices will fall.
B) the interest rate will fall and bond prices will fall.
C) there will be a surplus of money and bond prices will fall.
D) there will be a surplus of money and bond prices will increase.
E) the supply of money will decrease.

Question

Quizplus · Accepted Answer

At interest rates below equilibrium, there is excess demand for money, causing interest rates to rise and bond prices to fall.

Suppose That the Equilibrium Nominal Interest Rate Is 5 Percent