Question

Using supply and demand curves for money, illustrate the impact of the following events on the equilibrium interest rate: (5)

The general price level for goods increases

The real GDP rises ​

Answer 1

Answer:

In deciding how much money to hold, people make a choice about how to hold their wealth. How much wealth shall be held as money and how much as other assets? For a given amount of wealth, the answer to this question will depend on the relative costs and benefits of holding money versus other assets. The demand for money is the relationship between the quantity of money people want to hold and the factors that determine that quantity