Lab
Draw the Money Market Graph
Each situation changes money demand or money supply first. Label both axes and name both curves, choose what moves, drag it the way the situation pushes it, then drag the round point to the new equilibrium and check your graph. The exam's labels are MD and MS, i1 and i2 for the nominal interest rate, and Q1 and Q2 for the quantity of money.
Challenges
- Before you check each graph, say which way the nominal interest rate will move, and whether the quantity of money changes too.
- Why does a shift of money demand leave the quantity of money where it was?
- Every money supply situation says the banking system has limited reserves. What would change about the graph you draw if it had ample reserves?