Answer to Question #89361 in Macroeconomics for Shivani

Question

The rate of interest is a price:
a. Of what is it the price? (1 mark)
b. What determines this price? (Sketch a relevant graph of the money market). (2 marks)
c. What factors influence the demand for money? (2 marks)
d. What factors influence the supply of money? (2 marks)
e. If the money market is in short-run equilibrium, explain the adjustments that will take place for:
i) an increase the in money supply (2 marks)
ii) increase in the demand for money (2 marks)