Assume a fixed demand for money curve and the RBA increases the money supply. The result is a temporary:
A) excess quantity of money demanded.
B) excess quantity of money supplied.
C) new equilibrium interest rate.
D) decrease in the demand for loans.

Question

Quizplus · Accepted Answer

If the RBA increases the money supply with a fixed demand for money curve, then there will be an excess quantity of money supplied in the market. This means that there will be more money available than the demand for money, leading to a temporary imbalance between supply and demand. As a result, market interest rates will tend to go down as borrowers will find it easier to get loans. This excess quantity of money supplied will eventually be absorbed by the market as the increased money supply lead to an increased demand for goods and services.

Assume a Fixed Demand for Money Curve and the RBA