question archive In the money market model, when money demand increases, it does not affect the money supply, so the quantity of money demanded and the quantity of money supplied remain the same
In the money market model, when money demand increases, it does not affect the money supply, so the quantity of money demanded and the quantity of money supplied remain the same
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In the money market model, when money demand increases, it does not affect the money supply, so the quantity of money demanded and the quantity of money supplied remain the same. (the only thing that changes is the interest rate).
If they are the same as before, How does it affect the supply of loanable funds?
Explain in detail.
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If the demand for money increases, but the supply remains the same, the interest rate (price of money) will increase. This is because loanable funds are now relatively scarce, and the outsized demand will bid up the price of money. Graphically, the demand for money has shifted outward to the right, thereby pushing the equilibrium interest rate higher.
