Explain how each of the following changes would affect the supply of money, the demand for money and interest rate. Support your answers with graphs.
An increase in credit card usage reduces the cash people hold.
(draw money demand & money supply curve)
Households decide to hold more money to use for holiday shopping.
(draw money demand & money supply curve)
The business firms increase investments and this increases aggregate demand.
(draw money demand & money supply curve)
If the central bank buy's bond in the open market operations what would happen to the money supply and money demand. Draw money demand & money supply curve and explain.
If the Central Bank decreases the money supply, use the model of money demand and money supply curve to show how this will affect the interest rate, output and in the short run.