Question

If the amount of money demanded exceeds the amount supplied, the:

A. demand-for-money curve will shift to the left.
B. money supply curve will shift to the right.
C. interest rate will rise.
D. interest rate will fall.

Answer 1

The correct answer is C: the interest rate will rise when the amount of money demanded exceeds the amount supplied, as lenders will charge more due to excess demand.

Step-by-step explanation:

If the amount of money demanded exceeds the amount supplied, the correct answer is C: the interest rate will rise.

This occurs because in a financial market, if there's an excess demand for funds, lenders can charge a higher interest rate for the limited funds they have to lend.

So, when demand exceeds supply, it's not the position of the demand curve or supply curve that changes immediately, but rather the equilibrium price—in this case, the interest rate—which adjusts to balance supply and demand.