Answer to Question #150813 in Macroeconomics for enny

Question

Suppose the Bank Negara Malaysia change the quantity of money in the economy. Graphically illustrate how does this change affect the interest rate in the long run?

Answer 1

When Bank Negara Malaysia increases the discount rate, then cost of borrowing increases in the economy. It also makes money to be used to buy bonds to earn higher rates. As a result, it makes money supply to decrease in the economy