Money Market

• Demand for money has an inverse relationship between nominal interest rates and the quantity of money demanded 
• When the interest rate increases, the quantity demanded of money falls because individuals would prefer to have interest earring instead of borrowed liabilities
• When interest rates decrease, the money quantity demanded increase. There is no incentive to convert cash into interest earning assets 
• Money demand is downward sloping 
• Money Demand Shifters 
• Change inn price levels 
• Change in income 
• Changes in taxation that affects investment 
• Increasing the Money Supply 
• If the FED increase the money supply, a temporary surplus of money will occurs at 5% interest.