Use money-demand and money-supply graphs to distinguish movements from shifts and determine equilibrium nominal interest rates after economic changes.
The money demand curve is downward sloping because
the transaction demand for money decreases as interest rates fall
people hold less money as the opportunity cost of holding money rises
money is less liquid as interest rates rise, so people are able to hold less of it
banks are more willing to create money when interest rates fall
with higher incomes, people are willing to hold smaller percentages of their money
The table provided shows economic data for the country of Louland. The base year is year 1, and the GDP deflator in year 2 is 115.
How would the change in real GDP from year 1 to year 2 affect the demand for money and the nominal interest rate in Louland?