Answer to Question #89500 in Macroeconomics for Sung Eun Seok

Question

If the money market is in short-run equilibrium, explain the adjustments that will take place for:
i) an increase the in money supply
ii) increase in the demand for money

Answer 1

i) With an increase in money supply directly affects the intensity of the turnover of money, the demand for money and the lucrative demand in commodity markets.

ii) With the increase in demand for money, there is an excessive demand for money in the initial position of equilibrium. Excess demand for money is satisfied by economic agents through the sale of bonds or loans from commercial banks. Increasing demand for loans contributes to an increase in interest rates.