Question

The equilibrium interest rate should a. fall when the aggregate demand for funds exceeds the aggregate supply of funds. b. rise when the aggregate demand for funds equals the aggregate supply of funds. c. rise when the aggregate supply of funds exceeds the aggregate demand for funds. d. fall when the aggregate supply of funds exceeds the aggregate demand for funds. e. "rise when the aggregate supply of funds exceeds the aggregate demand for funds" and "fall when the aggregate demand for funds exceeds the aggregate supply of funds".

Answer 1

Answer:

The correct answer is option D.

Explanation:

If the aggregate supply of funds is higher than the aggregate demand for funds. This means that more funds are available than what is demanded in the economy. Because of the excess availability of funds, the interest rate will fall.

On the contrary, if the demand is higher than supply the interest rate will increase.