Explain how the money market determines the equilibrium interest rate
What will be an ideal response?
The demand for money curve, MD, is downward sloping because as the interest rate decreases the quantity of money demanded increases. The supply of money curve, MS, is vertical at the quantity of real money. There exists only one interest rate for which the quantity of money demanded is equal to the quantity supplied. If the interest rate is above the equilibrium interest rate, so that there is an excess supply of money, people respond by buying bonds so that the interest rate falls. Likewise, if the interest rate is less than the equilibrium interest rate, so that there is an excess demand for money, people respond by selling bonds and the interest rate rises.
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Regarding the frustration of purpose doctrine, which of the following statements is true?
a. the purpose for which seller entered into the contract has become illegal b. the purpose for which buyer entered into the contract has become illegal c. the purpose of the contract has become illegal d. the contract no longer facilitates deferred exchange
You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: Receive $2,000 five years from now. The interest rate is 15 percent (0.15) per year. Rank these three options from highest present value to lowest present value
a. Option 1, Option 2, Option 3 b. Option 3, Option 2, Option 1 c. Option 2, Option 3, Option 1 d. Option 3, Option 1, Option 2 e. Option 1, Option 3, Option 2
The necessity for choice, in economics, arises from
a. high incomes and many goods. b. scarcity of economic means for satisfying economic wants. c. scarcity of time and knowledge, and numerous similar goods. d. All of the above are correct.
Each of these is an industrial union except
A. the steel workers' union. B. the auto workers' union. C. the teamsters' union. D. the musicians' union.