Money & Finance · intro
What moves on the Money Market diagram
Expanding money supply creates excess liquidity at the old rate; i falls until money demand absorbs it, the liquidity effect.
The vertical Ms line is the central bank's choice.
It buys bonds, injecting money. Ms jumps right.
With more liquidity than people want at the old rate, the interest rate falls until they're willing to hold it.
Examiners ask this as: quantitative easing, money supply up, liquidity injection.
Other scenarios on Money Market