Money supply and demand determine the value of money but not the real interest rate.
What is money demand?
- The amount of income, interest rates, inflation, and future uncertainty are some of the variables that have an impact on the desire for money.
- The equilibrium interest rate on the money market is in line with the interest rate realized on the bond market.
- The level of prices, the interest rate, and the actual gross domestic product all influence the requests for money. These three variables work together to determine how much of a person's wealth is held in interest-bearing assets and how much is held in cash and checking for daily expenses.
- A rise in the money supply will result in an increase in the overall demand for goods and services.
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