Question

If the money supply exceeds money demand, people will ____ bonds which will cause bond prices to ____ and the nominal interest rate to _____ until money demand equals money supply.

Answer 1

People are going to start to buy more bonds, which will increase the demands for bonds. With this increase in demand, there's going to be an increase in price to meet up with the demand. However, the nominal interest rate is going to fall, because nominal interest rate does NOT take account into the inflation of prices we see because of the increase bond demand.