Money & Finance · intro
What moves on the Money Market diagram
Contracting the money supply makes liquidity scarce; the nominalnominalMeasured in current dollars, unadjusted for inflation. rate rises to clear the money market.
Start at a low rate.
Fighting inflationinflationA sustained rise in the overall price level, eroding money's purchasing power., the bank sells bonds and drains money. Ms shifts left.
Scarce liquidity bids the interest rate up sharply. This is 2022 in one picture.
Examiners ask this as: money supply cut, tightening inflation fight, rates jump.
Other scenarios on Money Market