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The Money Market

The Money Market. Lesson 32 Sections 28, 29. The Demand for Money. The Opportunity Cost of Holding Money Convenience Interest Rates Short Term Interest Rates Move Together As investors look for the best interest rates Effects the demand for money Long Term Interest Rates Bonds, IRAs

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The Money Market

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  1. The Money Market Lesson 32 Sections 28, 29

  2. The Demand for Money • The Opportunity Cost of Holding Money • Convenience • Interest Rates • Short Term Interest Rates Move Together • As investors look for the best interest rates • Effects the demand for money • Long Term Interest Rates • Bonds, IRAs • Expectations of what short term interest rates will do in the future

  3. Money Demand Curve • Shifts in the Money Demand Curve • Changes in Aggregate Price Levels • Changes in Real GDP • Changes in Technology • Changes in Institutions • Money and Interest Rates • Equilibrium Interest Rate

  4. The Market for Loanable Funds • The Equilibrium Interest Rates • Loanable Funds Market • Hypothetical market that satisfies all savers and borrowers • Rate of Return • [(Revenue from Project – Cost of Project)/Cost of Project]/100 • Shifts in Demand for Loanable Funds • Changes in Perceived Business Opportunities • Changes in Government Borrowing • Crowding Out • Shifts of the Supply of Loanable Funds • Changes in Private Savings Behavior • Changes in Capital Inflow • Inflation and Interest Rates

  5. Reconciling The Two Interest Rate Models • Liquidity Preference • Loanable Funds Model • Interest Rates in the Short Run • Interest Rates in the Long Run

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