“money supply and interest rates are inversely related, as interest rates fall, money supply increases”
How does this relationship work? When interest rates fall what exactly happens to cause an increase in the money supply? Does this make an assumption that people borrow more when interest rates are low? But isn’t that assumption flawed? What if people do not borrow even as interest rates fall due to other economic factors, then the money supply will not increase.
The implied assumption, as always, is – "all other things remaining unchanged". Interest rates represent cost of borrowing money. If you lower the cost of anything, there will be more demand generally. {It is true I can eat only so much bread, even at 10 cents a loaf, but demand for money is much more elastic}
The implied assumption, as always, is – "all other things remaining unchanged". Interest rates represent cost of borrowing money. If you lower the cost of anything, there will be more demand generally. {It is true I can eat only so much bread, even at 10 cents a loaf, but demand for money is much more elastic}
The implied assumption, as always, is – "all other things remaining unchanged". Interest rates represent cost of borrowing money. If you lower the cost of anything, there will be more demand generally. {It is true I can eat only so much bread, even at 10 cents a loaf, but demand for money is much more elastic}
The implied assumption, as always, is – "all other things remaining unchanged". Interest rates represent cost of borrowing money. If you lower the cost of anything, there will be more demand generally. {It is true I can eat only so much bread, even at 10 cents a loaf, but demand for money is much more elastic}
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