When the interest rate increases, the money demand decreases. When the interest rate decreases the money demand increases. At higher interest rates, bonds become more profitable. As the interest rate increases, people demand a lower quantity of money. As the interest rate falls the quantity of money demanded increases (Asarta & Butters, 2015,). Also stated in the text book; the interest rate is money to the banks. Anything that will result in more loans being made will increase the supply of money, anything that reduces lending will decrease the supply of money. According to “The Journal of Finance” the income levels also can cause rates to grow or decrease. It states the rate of growth in nominal income depends on the spillover of the money balance discrepancy into both goods and now securities rate of growth of real income. Paying attention to the interest rates will help you save money or help you profit in the long run.
Reply to at least 2 of your classmates. Be constructive and professional in your responses.