1 answer

Macroeconomics - financial markets

Question:

Show the change in the demand for money and the change in the supply of money graphically and the effect on the equilibrium level of interest rate and the quantity of money. The scenario is as follows:
the increase in demand for money is equal to the increase in the supply of money


Answers

image.png

An increase in money demand shifts the demand curve rightwards from Md to Md' and increase in money supply shifts the vertical supply curve rightwards from Ms to Ms'. As a result, the equilibrium interest rate increases from i to i' and quantity of money also increases from Q to Q'.

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