The money market equilibrium is defined as_________

Step 1: Analyze the question The question asks for the definition of money market equilibrium. Equilibrium in economics means a state of balance, where there is no tendency for change.

Step 2: Explain the concept The money market is where the demand for money (people's desire to hold cash and liquid assets) meets the supply of money (the amount provided by the Central Bank of Nigeria and the banking system).

• The demand for money comes from the transactionary, precautionary and speculative motives.
• The supply of money is largely controlled by the CBN through monetary policy.
• The interest rate is the "price" of money. It adjusts until the quantity of money demanded equals the quantity supplied.

Step 3: Work through the options

• A. Demand and supply of money are equal. This is the balance point. At this point the interest rate is stable, so it is the equilibrium.
• B. Demand greater than supply. This is excess demand for money (a shortage). Interest rates rise, so it is a disequilibrium.
• C. Demand less than supply. This is excess supply. Interest rates fall, so it is a disequilibrium.
• D. Supply greater than demand. This is the same as C, so it is also a disequilibrium.

Step 4: Answer Money market equilibrium occurs when the demand for money equals the supply of money, which is option A.

Exam tip: In any market, whether goods, labour or money, equilibrium means quantity demanded = quantity supplied. If an option describes one side being bigger than the other, it is describing a disequilibrium (a shortage or a surplus), so you can eliminate it quickly.