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Chapter 13 The demand for money -Money is demanded for means of exchange and a store of purchasing power Transactions demand -Transactions demand is the demand for money that is related to its use as a means of exchange Asset Demand -The demand for money that is related to its use as a store of purchasing power Main cost of money is the added income that could be earned by converting it into an asset such as a bond Bonds are contracts to setamount borrowed by whom period of time interest rate alternative to holding money Bonds van be bought and sold their process are inversely related to the interest rate when interest rate increases the prices of bonds fall Lower prices of bonds cause individuals to buy it A reduction in interest rate causes the price of bonds to rise and the wealth holders tend to hold money rather than bonds pushing up the demand for money Money demand -Money demand represents the amounts of money demanded at all possible interest rates and it can be represented by the Money Demand Schedule and Money Demand Curve -The change in asset demand causes a change in quantity of money demand The supply of money The money supply is a set amount determined by government decision-makers The money supply schedule is the money supply expressed in a table and it is expressed in the money supply curve Equilibrium in the money market -The demand and supply of money interact in the market to bring about a state of equilibrium -When the interest rate is about its equilibrium level there is a surplus of money -As people try to rid themselves of money and buy assets that will provide high earnings the demand for these assets rises pushing up their price and causing the nominal interest rate to fall
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