Monetary Policy- eco

CFA Level I
#1

Which of the following statements regarding the money supply and determination of short-term interest rates is least accurate?
A) On balance, growth in real GDP tends to increase the transactional demand for money.
B) If the short-term interest rate is greater than the equilibrium rate, there will be excess supply of real money balances.
C) An increase in the real money supply from an initial equilibrium situation will cause households and businesses to sell interest- bearing securities.

Answer says C, can someone explain how not B?
Higher the interest rates reduces the money supply in the market

#3

yeah exactly the question says least accurate so Option B should be least accurate right?

#4

OK. To be honest I had to gio back and re-read here (and I have an economics degree!)

Assume we are in balance Ms = Md at interest rates = Eq
Money suppply is fixed.
If interest rates rise above Eq the demand for money falls as people invest in alternative.
Now we have Ms > Md = Excess Money Supply. B is true

#5

Yeah that’s what so the solution has given the wrong answer right

#6

Answer B is accurate.

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