March 22, 2017
Supply and Demand for Money
- Demand for money has an inverse relationship between nominal interest rates and the quantity of money demanded
- Ex: quantity demanded increases when interest rate decreases
What causes money demand shift?
- Changes in price level, income, taxation that affects investment.
Demand deposit is created through fractional reserve system.
FRS: process by which banks for a small portion of the deposit in reserve and loan out excess. Banks keep cash on hand(required reserves) to meet depositors needs.
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