The diagram below shows the demand for money and the supply of money.
- A) Explain why the Money Demand Curve is a downward sloping curve.
- B) Suppose the interest rate is at iA. Explain how firms and households attempt to satisfy their excess demand for money. What is the effect of their actions?
- C) Suppose the interest rate is at iB. Explain how firms and households attempt to dispose of their excess supply of money. What is the effect of their actions?
- D) Now suppose there is an increase in the transactions demand for money because of growth in real GDP. Beginning at i*, explain what happens in the money market. How is this shown in the diagram?
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The diagram below shows the demand for money and the supply of money. A) Explain why the Money Demand Curve is a downw...
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