a. It is the price of money.
b. Money demand and supply determine this price.
c. Factors that influence the demand for money are:
Interest Rates, Consumer Spending, Precautionary Motives, Transaction Costs for Stocks and Bonds, Change in the General Level of Prices, International Factors.
d. Factors that influence the supply of money are:
Open market operations, reserve requirement and the policy interest rate set by the central bank.
e. If the money market is in short-run equilibrium:
i) an increase in the money supply will cause an increase in quantity of money and a decrease in interest rate.
ii) increase in the demand for money will cause an increase in quantity of money and an increase in interest rate.
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