Author Question: Suppose the quantity of money is greater than the quantity of money demanded. In the short run, what ... (Read 95 times)

olgavictoria · **on:** Jun 29, 2018

Suppose the quantity of money is greater than the quantity of money demanded. In the short run, what occurs to set the quantity of money equal to the quantity of money demanded?

What will be an ideal response?

Question 2

Which of the following are typically financed in the loan market?

i. a mortgage for a house
iii. credit card balances
iii. the purchase of a share of stock in a corporation.
A) i only B) i and iii C) ii and iii D) i, ii and iii E) i and ii

bulacsom · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

In the money market, the interaction between the supply of money and the demand for money determines the equilibrium nominal interest rate. The quantity of money available is greater than the quantity of the money demanded when the nominal interest rate is above the equilibrium interest rate. When this occurs, in an effort to decrease the amount of money to the quantity people want to hold, people buy bonds with the excess. As a result, the demand for bonds increases. The price of bonds rises and the interest rate falls. When the nominal interest rate reaches its equilibrium, there is no longer an excess supply of money because at the equilibrium nominal interest rate, the quantity of money supplied equals the quantity demanded.

Answer to Question 2

E