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Use the concept of market equilibrium to explain changes in the interest rate and money supply

Use the concept of market equilibrium to explain changes in the interest rate and money supply

Answers

william
The interest rate is the rate at which interest is paid by a borrower (debtor) for the use of money that they borrow from a lender (creditor).
Factors that contribute to the interest rate include: Political gain: both monetary and fiscal policies can affect the money supply and demand for money.
Consumption: the level of consumption (and changes in that level) affect the demand for money.
Inflation expectations: inflation expectations affect a the willingness of lenders and borrowers to transact at a given interest rate. Changes in expectations will therefore affect the equilibrium interest rate.
Taxes: changes in the tax code affect the willingness of actors to invest or consume, which can therefore change the demand for money.
In the case of money supply, the market equilibrium exists where the interest rate and the money supply are balanced.
The real interest rate measures the purchasing power of interest receipts. It is calculated by adjusting the nominal rate charge to take inflation into account.
Market Equilibrium
In economics, equilibrium is a state where economic forces such as supply and demand are balanced and without external influences, the equilibrium will stay the same. Market equilibrium refers to a condition where a market price is established through competition where the amount of goods and services sought by buyers is equal to the amount of goods and services produced by the sellers. In the case of money supply, the market equilibrium exists where the interest rate and the money supply are balanced. The money supply is the total amount of monetary assets available in an economy at a specific time. Without external influences, the interest rate and the money supply will stay in balance.
steve williams answered the question on January 23, 2018 at 10:39

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