I know that there's a shift in money supply in the Keynesian curve to the right, and this reduces interest because interest is the price of money. Yet how do I explain WHY it shifts. I mean i can't just say higher money supply shift from S1 to S2 lowers interets rates from I1 to I2. Okay, why?
x Turn on thread page Beta
WHY does higher money supply lower interest rates please HELP watch
- Thread Starter
- 15-05-2016 15:01
- 15-05-2016 21:43
It is simple supply and demand. An increase in the supply of anything leads to a lower price. In this case, an increase in the supply of money leads to a fall in the price of money (The interest rate)