Question

4. Consider a money market in which there is an excess supply of money at the current interest rate. Then what likely to happen is the money supply curve will shift to the right until the demand for money equals the supply. the money demand curve will shift to the right, causing the price of bonds to increase, and the interest rate to fall, until the demand for money equals the supply. the corresponding excess supply for bonds will cause the price of bonds to increase, and the interest rate to fall, until the quantity demanded of money equals the quantity supplied of money. the corresponding excess demand for bonds will cause the price of bonds to increase, and the interest rate to fall, until the quantity demanded of money equals the quantity supplied of money. the money supply curve will shift to the left until the demand for money equals the supply.

          4. Consider a money market in which there is an excess supply of money at the current interest rate. Then what likely to happen is
the money supply curve will shift to the right until the demand for money equals the supply.
the money demand curve will shift to the right, causing the price of bonds to increase, and the interest rate to fall, until the demand for money equals the supply.
the corresponding excess supply for bonds will cause the price of bonds to increase, and the interest rate to fall, until the quantity demanded of money equals the quantity supplied of money.
the corresponding excess demand for bonds will cause the price of bonds to increase, and the interest rate to fall, until the quantity demanded of money equals the quantity supplied of money.
the money supply curve will shift to the left until the demand for money equals the supply.

Added by Rachel C.

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