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What effect does an increase in the money supply have on inflation?
An increase in the money supply shifts the money supply curve to the right. If you look on your graph, you will see that an increase in money supply will cause the interest rate to decrease. Here's why: Fed increases money supply-->excess supply of money at the current interest rate -->people buy bonds to get rid of their excess money-->increase in the prices of bonds --> decrease in the interest rate.
What impact does the interest rate have on the money supply?
The interest rate affects the money supply by influencing borrowing and lending behavior. When interest rates are low, borrowing becomes cheaper, leading to increased spending and investment, which can boost the money supply. Conversely, high interest rates can discourage borrowing and spending, potentially reducing the money supply.
What factors that influence money supply?
inflation ,deflation, interest rate
How does an increase in the interest rate by the Fed impact the supply of money?
An increase in the interest rate by the Federal Reserve can impact the supply of money by making borrowing more expensive. This can lead to a decrease in the amount of money available for lending and borrowing, which can reduce the overall supply of money in the economy.
If there is an excess supply of money?
deposit more into interest-bearing accounts, and the interest rate will fall.
Why is money suppy a major determinant of interest rates?
Because: Real interest rate occurs when real money demand = money supply When money supply changes, the equilibrium interest rates changes as this equation shows.
What factors influence the demand for money?
In the simplest models, the supply of money and the real interest rate.
Why does aggregate demand go up when money supply increases?
It doesn't. Money supply has no effect on aggregate demand. Aggregate demand is only effected by the buying power of money, real interest rate, and the real prices of exports and imports. If the supply of money goes up it only causes a short term decrease in the nominal interest rate. The price level is not accompanied by a decrease in the supply of money so the real interest rate does not rise.
What is the rate called where The Federal Reserve can control the supply of money by adjusting the interest rate it charges the borrowers.?
discount rate
Explain why the FED cannot set intermediate targets in terms of both monetary aggregates and interest rates?
Monetary aggregate is a goal of money supply. Interest rate is a goal of a constant rate. To hold a specific money supply the interest rate would fluctuate. To hold a specific interest rate the money supply would fluctuate. So they can not work together.Check this out and read 11.2 through 11.4http://www.pitt.edu/~jduffy/econ280/lec1213.pdf
A change is the money supply will change investment when?
Monetary policy will never be effective if interest rates: not respond to a change in the money supply, and investment spending does not respond to changes in the interest rate.
Why the government attempt to target changes in the money supply or changes in interest rate but not both?
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