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?
Money Demand
Key Takeaways
- Anytime the gross domestic product (GDP) rises, there will be a demand for more money to make the transactions necessary to buy the extra GDP. If GDP falls, then people demand less money for transactions.
- The interest one gives up is the opportunity cost of holding money.
- As interest rates rise (fall), the demand for money will fall (rise).