What happens when there is an overall shortage of liquidity in the money market?

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Banks will boost their lending activities.The short-term interest rate between commercial banks will decline, and the central bank might reduce liquidity provision.The short-term borrowing rate among banks will increase, potentially causing long-term rates to rise as well.Long-term interest rates will increase, prompting the central bank to raise its benchmark rate.Short-term interbank interest rates will go up, and the central bank may respond by supplying more liquidity to banks.

Explanation

When liquidity is generally scarce in the money market, banks tend to increase lending to meet demand. Other options incorrectly describe interest rate movements or central bank responses that do not align with a liquidity shortage scenario.