Asked by Kennedy McCarthy on May 31, 2024
Verified
The equilibrium interest rate in a money market is determined by:
A) the rate of inflation.
B) aggregate demand and aggregate supply.
C) money demand and money supply.
D) the Congress.
E) the Fed.
Equilibrium Interest Rate
The interest rate at which the demand for funds (borrowing) equals the supply of funds (saving), resulting in a stable market condition.
Money Demand
The desire to hold cash or liquid assets based on the trade-off between the liquidity provided by holding money and the foregone interest earnings from not investing it.
- Become aware of the interaction between money supply, its demand, and interest rates in the field of monetary economics.
Verified Answer
ZK
Zybrea KnightJun 06, 2024
Final Answer :
C
Explanation :
The equilibrium interest rate in a money market is determined by the intersection of the money demand and money supply curves. Money demand is influenced by factors such as income, wealth, and interest rates, while money supply is determined by the actions of the central bank, such as open market operations and changes in reserve requirements. The rate of inflation, aggregate demand and supply, the Congress, and the Fed can all affect the behavior of money demand and money supply, but they do not directly determine the equilibrium interest rate.
Learning Objectives
- Become aware of the interaction between money supply, its demand, and interest rates in the field of monetary economics.