FREE IGNOU BECC-133 SOLVED ASSIGNMENT 2023-24

 

7. Equilibrium in the Money Market: Equilibrium in the money market is achieved when the supply of money equals the demand for money. The demand for money depends on the nominal income level and the interest rate. As nominal income increases, the demand for money also increases because people need more money to conduct transactions. On the other hand, as the interest rate rises, the demand for money decreases as people are more inclined to hold assets that earn interest.

An increase in nominal income affects the money market equilibrium by shifting the demand for money curve to the right. This happens because higher income levels require more money for transactions. As the demand for money increases, the interest rate must rise to maintain equilibrium. Therefore, an increase in nominal income leads to a higher equilibrium interest rate.