Monetary Policy - Money and interest rates - the equilibrium interest rates
3 important questions on Monetary Policy - Money and interest rates - the equilibrium interest rates
What shows how the nominal quantity of money supplied by the bank of Canada varies with the interest rate?
The Money Supply Curve
What is the shape of the money supply? And who choses it?
The shape of the money supply is vertical.
the Central banks chooses the money supply
the Central banks chooses the money supply
What happens to interest rates if the money demanded is less than the money supplied (so to the left of the vertical line)? People holdings of money
- At this point people want to hold less money than they want to save
- quantity of money demanded is less than quantity of money supplied
- quantity of interest bearing assets demanded is greater than quantity of interest bearing assets supplied
- because quantity of interest bearing assets demanded is greater than quantity of interest bearing assets supplied those selling nonmonetary assets find can offer lower interest rates and still find buyers
- so the interest rate decreases until the MD=MS
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