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?
Comparative Statics in the Combined Money-Forex Model
Key Takeaways
- In the money-Forex model, an increase in the U.S. money supply, ceteris paribus, causes a decrease in U.S. interest rates and a depreciation of the dollar.
- In the money-Forex model, an increase in real U.S. gross domestic product (GDP), ceteris paribus, causes an increase in U.S. interest rates and appreciation (depreciation) of the U.S. dollar (British pound).