The demand for money
- Money is demanded for means of exchange and a store of purchasing power
- Transactions demand is the demand for money that is related to its use as a means of exchange
- The demand for money that is related to its use as a store of purchasing power
Main cost of money is the added income that could be earned by converting it into an asset such as a bond.
Bonds are contracts to set: amount borrowed by whom period of time interest rate
alternative to holding money
Bonds van be bought and sold, their process are inversely related to the interest rate, when interest rate increases the prices of bonds fall. Lower prices of bonds cause individuals to buy it. A reduction in interest rate causes the price of bonds to rise, and the wealth holders tend to hold money rather than bonds pushing up the demand for money.
- Money demand represents the amounts of money demanded at all possible interest rates, and it can be represented by the Money Demand Schedule and Money Demand Curve.
- The change in asset demand causes a change in quantity of money demand.
The supply of money
The money supply is a set amount determined by government decision-makers. The money supply schedule is the money supply expressed in a table and it is expressed in the money supply curve.
Equilibrium in the money market
- The demand and supply of money interact in the market to bring about a state of equilibrium
- When the interest rate is about its equilibrium level there is a surplus of money
- As people try to rid themselves of money and buy assets that will provide high earnings, the demand...