Money
Notes from 3/9/16
Money Demand and Supply
-Demand for Money has an inverse relationship between nominal interest rates and the quantity of money demanded
-What happens to quantity of money when interest rates decrease?
+Quantity Demanded falls because individuals would prefer to have interest earning assets instead of borrowed liabilities
-What happens to Quantity Demanded when interest rates decrease?
+Quantity Demanded decreases because there is no incentive to convert cash into interest earning assets
Increasing Money Supply
-If the FED increases money supply, a temporary surplus of money will occur at i. The surplus will cause interest rate to fall to i'.
Supply of Money Increases ---> Interest Rates Decrease ---> Investment Increases ---> Aggregate Demand Increases
Decreasing Money Supply
-If the Fed decreases money supply, a temporary shortage of money occurs.
Supply of Money Decreases ---> Interest Rates Increase ---> Investment Decreases ---> Aggregate Demand Decreases
-JaelyNoTainted
Like Jaelyn (SPACE) Not (SPACE) Tainted
Get it?
Thank you for putting these graphs up they help a lot! When supply of money moves to the right that's when interest rates decrease so that would be expansionary. Great blog it's very sparkly!
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