00:01
Suppose the money supply rises.
00:02
Is the interest rate guaranteed to decline initially? why or why not? here, we know that the nominal interest rate or market interest rate is the price of a loan, and it is determined by the interaction between demand for and supply of loanable funds within the market.
00:16
Anything that either affects demand for or supply of loanable funds will affect the interest rate.
00:20
Four factors that affect the supply and demand of loanable funds are, one, the supply of loans, two, real gdp, three, the price level, and four, the expected inflation rate.
00:33
The increase in real gdp affects both the supply and demand for loanable funds.
00:38
Usually, the increase in supply is less than the increase in demand, so the interest rate increases.
00:43
The increase in price level decreases the purchasing power of money, and therefore, demands for loanable funds rises, and interest rates go up.
00:51
The increase in expected inflation rate increases demand for loanable funds and decrease the supply of loanable funds...