Question

When the interest rate on a bond is above the equilibrium interest rate, there is excess __________ in the bond market and the interest rate will __________. question 4 options: demand; rise demand; fall supply; fall supply; rise?

Answer 1

"... there is excess supply of bonds... interest rate will fall."
When the interest rate is above equilibrium, Qd (Quantity demanded) will be less than Qs (Quantity supplied) of bonds, since people are less willing to purchase when price is too high, and producers are more willing to sell their bonds when price is higher (since they earn more per unit sold). This results in surplus of bonds in the market, where Qs > Qd, which leads to a downward pressure being applied on price (in this case, the interest rate) so that Qs eventually equals to Qd.

Hope this helps!