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?
Some Preliminaries
Key Takeaway
- The term money is used causally in different ways than we define it in the model: here money is defined as total value of coin and currency in circulation and checking account deposits at a point in time.
- The equilibrium interest rate in the money market model should be interpreted as an average interest rate across the entire economy, for deposits and for loans.