Interest Rate Determination
Completion requirements
Here, you will learn about determining interest rates and how supply and demand play a role in determining interest rates. Pay attention to the Fed's role in this determination and to the effects of the increase of money supply on interest rates. What are the determinants of interest rates?
Overview of Interest Rate Determination
Key Takeaway
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The key results from the money market model are the following:
- When the money supply rises (falls), the equilibrium interest rate falls (rises).
- When the price level increases (decreases), the equilibrium interest rate rises (falls).
- When real gross domestic product (GDP) rises (falls), the equilibrium interest rate rises (falls).