The equilibrium interest rate in a money market is determined by:
A)the rate of inflation.
B)aggregate demand and aggregate supply.
C)money demand and money supply.
D)the Congress.
E)the Fed.

Question

Quizplus · Accepted Answer

The equilibrium interest rate in a money market is determined by the intersection of the money demand and money supply curves. Money demand is influenced by factors such as income, wealth, and interest rates, while money supply is determined by the actions of the central bank, such as open market operations and changes in reserve requirements. The rate of inflation, aggregate demand and supply, the Congress, and the Fed can all affect the behavior of money demand and money supply, but they do not directly determine the equilibrium interest rate.

The Equilibrium Interest Rate in a Money Market Is Determined