Question

How is the interest rate determined in the money market? Describe the process in the money market by which the interest rate reaches its equilibrium value. If it is above the equilibrium what happens? (WRITTEN RESPONSE DO NOT post a picture of the response to this question as I might not be able to understand handwriting.)

Answer 1

HOW IS INTEREST RATE CALCULATED IN MONEY MARKET

Interest rate is generally calculated on a daily basis for money market accounts,and is paid out at the end of each month directly into the money account.money market mutual funds are subjected to lower interest rates because of the underlying assets and also because they are dependent applicable market interest rate.

Describe the process in the money market by which the interest rate reaches its equilibrium value

Money market equilibrium occurs at the interest rate at which the quantity of money demanded equals quantity of money supplied,all other things remaining unchanged,a shift in money demand or supply will lead to a chang in the equilibrium interest rate and therefore to changes in the level of real GDP and the price level.

If it is above the equilibrium what happens?

The money market, the nominal interest rate adjusts until the quantity of money that people want to hold is the same as the quantity of money that exists. If the nominal interest rate is above equilibrium high, people reduce their holdings of cash.