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    Price Level N Money Supply

    Uploaded by

    Muhammad Rauf Ali
    The document discusses the impact of liquidity and real balance effects on money market equilibrium. It examines how decreasing the nominal money supply or price level would impact interest rates in the money market. Specifically: 1) A decrease in the nominal money supply would cause bond prices to decrease, leading to an increase in the equilibrium interest rate. 2) A decrease in the price level would cause bond prices to increase, leading to a decrease in the equilibrium interest rate. 3) Both scenarios illustrate how changes in liquidity or the price level impact the money market equilibrium interest rate when the other factor is held constant.

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    Price Level N Money Supply

    Uploaded by

    Muhammad Rauf Ali
    12 views3 pages
    The document discusses the impact of liquidity and real balance effects on money market equilibrium. It examines how decreasing the nominal money supply or price level would impact interest rates in the money market. Specifically: 1) A decrease in the nominal money supply would cause bond prices to decrease, leading to an increase in the equilibrium interest rate. 2) A decrease in the price level would cause bond prices to increase, leading to a decrease in the equilibrium interest rate. 3) Both scenarios illustrate how changes in liquidity or the price level impact the money market equilibrium interest rate when the other factor is held constant.

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    Price Level n Money Supply

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    The document discusses the impact of liquidity and real balance effects on money market equilibrium. It examines how decreasing the nominal money supply or price level would impact interest rates in the money market. Specifically: 1) A decrease in the nominal money supply would cause bond prices to decrease, leading to an increase in the equilibrium interest rate. 2) A decrease in the price level would cause bond prices to increase, leading to a decrease in the equilibrium interest rate. 3) Both scenarios illustrate how changes in liquidity or the price level impact the money market equilibrium interest rate when the other factor is held constant.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    12 views3 pages

    Price Level N Money Supply

    Uploaded by

    Muhammad Rauf Ali
    The document discusses the impact of liquidity and real balance effects on money market equilibrium. It examines how decreasing the nominal money supply or price level would impact interest rates in the money market. Specifically: 1) A decrease in the nominal money supply would cause bond prices to decrease, leading to an increase in the equilibrium interest rate. 2) A decrease in the price level would cause bond prices to increase, leading to a decrease in the equilibrium interest rate. 3) Both scenarios illustrate how changes in liquidity or the price level impact the money market equilibrium interest rate when the other factor is held constant.

    Copyright:

    © All Rights Reserved
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    of 3

    I

    MPACTOFLI
    QUI
    DILTYANDREALBALANCEEFFECTSONMONEY
    MARKETEQUI
    LIBRI
    UM

    SUBMI
    TTEDBY Uzai
    rkhan

    SUMBI
    TTEDTO MR.UMER

    ROLLNO 9171006

    CLASS BBA5TH A(
    MORNI
    NG)
    TheLi
    qui
    dit
    yef
    fectofadecr
    easei
    ntheNomi
    nalMoneySuppl
    y:

    Atthest
    arti
    ngpointequili
    brium e0nomi nalinterestrat
    ero
    nther
    eisexcessquanti
    tyof
    moneydemandedwhi chmeanst hattherewi llbeexcessquant i
    tyofbondssuppli
    ed.
    1
    Whenbondpricesdecrease,int
    erestratewillincreaseatr n.Theri
    seintheequi
    li
    bri
    um
    i
    nter
    estr
    ateshowst heresultofdecreaseinnomi nalmoneysuppl ywi
    thconstantpr
    ice
    l
    evel
    .

    TheLi
    qui
    dit
    yef
    fectofadecr
    easei
    nthePr
    iceLevel
    :
    Atanequil
    ibr
    ium e0 i
    nterestrat
    er0
    nt
    hereisanexcessquanti
    tyofbondsdemanded.
    1
    Whenbondpr iceincreases,i
    nter
    estr
    atewilldecr
    easeatnew equi
    li
    bri
    um rn.So,the
    decr
    easeinthei nt
    erestrateistheoutcomeofdecreasei
    npr i
    celevelwi
    thconstant
    nominalmoneysupply.

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