How is equilibrium achieved in money market?
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Market Equilibrium
It is the exact price set equal to the market demand of a product.
-In the money market this is achieved when the pricing rates of the demanded money quantity is equated to the money supplied.
It is the exact price set equal to the market demand of a product.
-In the money market this is achieved when the pricing rates of the demanded money quantity is equated to the money supplied.
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Equilibrium in the money market is achieved when the demand for money is equal to the supply of money. The demand for money is mainly the amount of money people want. It could be either to purchase goods or services or for precautionary purposes like medical services or in the form of bonds and shares by speculating the prices.Thus the demand for money is usually affected by the interest rates, level of income, and inflation.
On the other hand, the supply of money is the total stock of money in the economy it can be in the form of printed notes and coins, money in the accounts and other liquid assets. Thus, the role of banks is considered to be quite important in the supply of money.
Thus, whenever the interest rate becomes stagnant there will be an equilibrium achieved in the money market as every individual's desire to hold a specific amount of money would be equal what is available in the economy.
On the other hand, the supply of money is the total stock of money in the economy it can be in the form of printed notes and coins, money in the accounts and other liquid assets. Thus, the role of banks is considered to be quite important in the supply of money.
Thus, whenever the interest rate becomes stagnant there will be an equilibrium achieved in the money market as every individual's desire to hold a specific amount of money would be equal what is available in the economy.
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